Newsletter - August 2019
Global updates – a quick glance
Australia: Whistleblower Protections Act, 2019 will be applicable to all companies from July 1, 2019
China: China cuts the pension contribution rate significantly from 20% to 16%.
France:
India:
Netherlands: Netherlands’ Ultimate Beneficial Owners register to be effective beginning January 2020.
South Korea: All employers must file a 'Simplified Statement on Wage and Salary Income Payment' bi-annually effective this year.
General Data Protection Regulation (“GDPR”) Fines: The list of companies fined for GDPR violations is increasing; here are some of the recently reported fines. Compliance with GDPR should be a top priority for businesses operating in the EU.
Country |
GDPR Fines |
France |
France’s data protection regulator, CNIL (Commission Nationale de l'Informatique et des Libertés) has issued a fine of EUR 50 Million on Google for failing to comply with its GDPR obligations. |
Italy
|
Italy’s privacy regulator imposes a fine of EUR 1 million on Facebook for disclosure of private/personal information of users to third parties without taking prior consent of the users. |
Spain
|
The Spanish Data Protection Authority imposed a EUR 250,000 fine on the Spanish Major Soccer League, La Liga. |
Netherlands |
The Dutch Data Protection Authority charges its first GDPR fine of EUR 460,000 on a hospital for accessing the medical records of a Dutch celebrity. |
United Kingdom |
The Information Commissioner's Office (ICO) has levied a fine of EUR 100,000 under the Data Protection Act 1998 (“DPA“) on EE (a British mobile network company) for sending text messages to customers without their consent. |
Table of Contents
Thresholds determining Large Proprietary Company doubled from July 01, 2019
Whistleblower Protections Act, 2019 will be applicable to all companies from July 01, 2019
New ‘Encouraged’ list for foreign investment enacted with effect from July 30, 2019
Pension contribution rates reduced from 20% to 16% across China with effect from May 01, 2019
There are changes in the corporate tax reduction policy
A three percent digital service tax has been enacted and will be applied retroactively from January 1, 2019
Computerized format of invoices will be allowed for evidencing tax expenses
Exemption from statutory pension contribution for foreign employees hired in France
Threshold criteria for appointment of an external auditor increased for SRL companies
Mexico's Labor Reform 2019 imposes stricter obligations on employers
Netherlands’ Ultimate Beneficial Owners register to be effective from January 2020
From July 1, 2019 the current threshold determining the Large Proprietary company has doubled from:
Implication
The number of companies that get classified as small entities will increase and will reduce the financial reporting obligations for most companies.
The Treasury Laws Amendment (Enhancing Whistleblower Protections) Act 2019 (“the Act”) will be applicable to all companies, which includes foreign corporations, financial, trading corporations, ADIs, NOHCs, Insurers and super funds from July 1, 2019. The Act brings about enhanced disclosures, ethical whistleblowing measures and protection of the whistleblowers by amending certain provisions of the Corporations Act, 2001 and the Taxation Administration Act, 1953.
Key reforms include:
Severe civil and criminal penalties will be levied on contravening employers who breach the provisions of the Act, being as under:
Implication
Though the formulation of a whistleblower policy is mandatory for certain companies, it is recommended that all companies review/update their policies, employment contracts and check implications of the act. Training programs may also be conducted to train people regarding the whistleblower policy and its disclosures.
The Australian Taxation Office (ATO) has recently clarified that ride-sharing services are not considered as Taxis and hence are subject to Fringe Benefit Tax (“FBT”) where the employee uses such service for travel to and from the workplace to the residence. The FBT exemption extends to a vehicle licensed as a taxi and as ride-sharing services are not licensed taxis, the employer will have to pay FBT on such services being used by the employee to commute to and from the workplace to the residence.
Implication
Employers that provide the employee with the benefit of ride sharing taxis for travel to and from the workplace to the residence will now have to pay FBT on the service.
The National Development and Reform Commission and Ministry of Commerce of China issued the following revised lists on June 30, 2019, to encourage foreign investment in China:
The above-mentioned negative lists prescribe the industries where foreign investment is restricted whereas the encourage list prescribes the industries where foreign investment is welcome. In a nutshell, negative lists have been reduced and the encouraged lists have been expanded.
Compared to the 2017 list, the Encouraged list for 2019 has widened the scope of industries to encourage more foreign investment in China. To clarify, the following industries have been added or moved to the encouraged sector:
Implication
Foreign investments that come under the encouraged list will be eligible for favorable treatments such as tax incentives, liberalized approval procedure, subsidized land prices, etc. Foreign investors will need to check their proposed activities with such lists before setting up in China.
The maximum employer contribution rate with respect to pension contributions has been reduced from 20% to 16%. Companies will need to check for specific adjustments and transition plans for each jurisdiction.
Moreover, employer contributions to unemployment insurance and work injury insurance will continue to be reduced through April 2020.
Implication
With such a reduction in the social security contribution rate, the employer social security insurance burden will be reduced. The employer should ensure that they are aware of the latest social security contribution rates and implement payroll accordingly.
Earlier this year, the corporate income tax was planned to be reduced progressively to 25% by 2022. However, on July 11, 2019, the French government approved legislation, which made certain changes with respect to corporate taxation. As per the new legislation, for companies with turnover of more than EUR 250 million (to be assessed on group level) the standard corporate tax rate of 33.33% will be applied, whereas companies with a turnover of less than EUR 250 million (to be assessed on group level) a corporate tax rate of 31% will be applied.
It is to be noted that a 28% corporate tax rate on the first EUR 500,000 remains unchanged.
Implication
Companies with large turnover will not benefit from reduced rates of corporate taxation.
On July 25, 2019, a digital service tax law was published in the French official gazette and it will be applied on income earned after January 1, 2019. This tax will be applied on certain digital services provided to French users. The criteria for determining tax applicability on the company will be as follows:
Since 2017, most receipts / invoices could be destroyed after scanning the copies (with conditions, this did not apply to social security receipts).
Effective July 1, 2019, supporting documents to prove the base of social security payments can be stored in computerized form. Companies can now set up a system for the digitization of expense reports without the requirement to maintain the same in paper format. Invoices will be allowed to be kept in computerized format subject to satisfaction of following conditions:
Implication
Though the implementing decree is now allowing companies to maintain the invoices in digital format, the conditions given above must be adhered to. Companies may have to maintain paper formats until this new process is settled and accepted by all authorities.
Foreign employees hired in France or assigned to France can opt out from French statutory pension contributions (subject to certain conditions) even if they are affiliated to the French social security system. The change was effective on June 18, 2019 and it will be applicable to employees retrospectively for employments beginning on or after July 11, 2018.
Such benefit from exemption from statutory pension contribution (i.e. basic old-age retirement and complementary retirement schemes) is available for a period of three years which can be further renewed for the same period.
Following are the conditions that must be met when opting out of a statutory pension contribution scheme:
The employer and employee must send joint requests to the French social security authority URSSAF (Unions de Recouvrement des Cotisations de Sécurité Sociale et d'Allocations Familiales) along with required documentation showing payment of a minimum annual contribution of EUR 20,000 to another retirement pension shceme . A sworn statement by the employee that they he was not subject to a French statutory pension regime for five calendar years from the date of start of employment in France must also be provided.
Implication
The opt out option from a social security contribution can result in cost saving for such employee. However, companies will have to ensure necessary documentation is in place before making claims to URSSAF or the opt out can result in a penalty.
The Finance Minister Nirmala Sitharaman presented the Union Budget for the year 2019-20 in the Parliament on July 5, 2019. As mentioned in the budget statement, India’s Ease of Doing Business ranking under the category of ‘paying taxes’ showed a significant jump from 172 in 2017 to 121 in 2019, India had also improved its overall ranking in doing business from 100 to 77.
The key highlights of the budget are as follows:
For Individuals
Annual Taxable Income (in INR) |
Tax rate |
0 to 250,000 |
0% |
250,001 to 500,000 * |
5% |
500,001 to 1,000,000 |
20% |
1,000,001 and above |
30% |
* Individual taxpayers having taxable income up to INR 500,000 will get a full tax rebate and will not be required to pay income tax. Please note that taxable income exceeding INR 500,000 will not receive any benefit from the tax rebate and hence will have to pay income tax on full taxable income. (Introduced in the Interim Budget of February 2019)
For Companies
Goods and Services Tax (GST)
The Union Budget for the year 2019-20 received President’s Assent on August 1, 2019.
The provisions of the Companies (Amendment) Act 2019 have been effective from various dates.
Some of the key amendments are as follows.
No. |
Particulars |
Old Provision |
New Provision |
1. |
Corporate Social Responsibility (CSR)
|
The unspent amount of Corporate Social Responsibility (“CSR”) was earlier required to be only stated in the annual report of the company and there was no such provision for transfer of the CSR amount to the government
CSR Applicability: The CSR is applicable for every Company including its holding and subsidiary company and foreign company having its branch office or project office in India having - Net worth of INR 5 billion or more, or - Turnover of INR 10 billion or more, or - Net profit of INR 50 million or more These have to make CSR contribution of 2% of the average net profit made during the three immediately preceding financial years.
|
The Indian government now requires a transfer of the unspent Corporate Social Responsibility (“CSR”) amount (as disclosed in the annual report) to the government within six months of the financial year.
For contravention of this provision, the government can impose a fine up to INR 2.5 million. |
4. |
Additional Disqualification for Directors
|
There were eight grounds for disqualification of a director under section 164 of the Companies Act.
|
An additional ground for disqualification of a director has been introduced. Accordingly, any director holding directorship in more than 20 companies or 10 public companies will be disqualified to act as a director – it is important to check this for nominee directors (provided by local service providers), who provide such services to multiple clients. |
5. |
Significant Beneficial Owner
|
The company was responsible only for reporting of information as received from the Significant Beneficial Owner (“SBO”) in the form BEN-1 regarding Significant Beneficial Ownership.
|
An amendment regarding Significant Beneficial Owner (“SBO”) places an onus on the company to undertake necessary steps for SBO identification and require the person to make the declarations specified under the Companies Act.
Note The Ministry of Corporate Affairs on July 29, 2019 gave an extension for filing of e-Form No. BEN-2 (Return to the Registrar in respect of declaration of SBO to be filed by the company upon receipt of information in BEN-1 from the shareholder of the company) without additional fees till September 30, 2019.
|
New form “Form DIR-3-KYC-WEB” for subsequent reporting of KYC of Directors
The Indian government has notified the Companies (Appointment and Qualification of Directors) Third Amendment Rules, 2019. It has eased the KYC (Know Your Client/Customer) filing of directors with the introduction of “Form DIR-3-KYC-WEB” for those whose director details as per the MCA (Ministry of Corporate Affairs) portal remains unchanged.
Particulars |
Old Provision |
New Provision |
KYC (Know Your Client/Customer) |
DIR-3 KYC Due Date June 30th
Provision Every individual holding Director Identification Number (DIN) had to file Form DIR-3 KYC with details such as name, nationality, residence, mobile number, the e-mail id, address, etc. along with proof for identification and permanent address.
|
Form DIR-3-KYC-WEB Due Date September 30th
Points to be noted With the introduction of “Form DIR-3-KYC-WEB” upon entry of the Director Identification Number (DIN), an OTP (One-time Password) will be sent on the email address and phone number of the director. Upon entering the correct OTP the other details will be pre-filled and there is no need to physically enter the details every time.
Every individual holding DIN, however, will still have to file the form “e-form DIR-3-KYC” for the first time or to update details such as mobile number or the e-mail address. |
Clarification on supply of information technology-enabled services (ITeS services) to overseas entities under Goods and Service Tax (GST) law
Recently, the Central Board of Indirect taxes and Customs (CBIC) has issued a circular providing clarification on the supply of information technology-enabled services (ITeS services) to overseas entities under Goods and Service Tax (GST) law.
ITeS services includes business process outsourcing services like back office operations, call centers, legal databases, payroll, remote maintenance, accounting etc.
Following are the takeaways from the circular:
Implication
It is very important to check and structure the activities in India keeping in mind this information, to avoid any GST liability in India. The liability can be very high with potential for disputes.
The Code on Wages Bill, 2019, has been passed in the Parliament, which subsumes the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976. The Bill will become an Act after Presidential assent.
The Code on Wages Bill, 2019 is the first in the series of four labor codes proposed in the government’s labor reform initiative and subsume various legal provisions related to worker’s wages, equal remuneration and payment, bonus, etc. The remaining three codes will deal with social security, industrial safety and welfare, and industrial relations.
Following are the some of the key provisions of the Code on Wages Bill, 2019:
(Currently, the provisions of the Minimum Wages Act, 1948 and the Payment of Wages Act, 1936 apply to workers employed in certain kinds of jobs and below a particular wage ceiling only.)
Implication
This is a very important law and will reduce labor disputes considerably.
Beginning August 1, 2019, Japan has expanded the list of sectors that require mandatory pre-foreign investment screening under the Foreign Exchange and Foreign Trade Law (FEFTL) of the country.
Prior reporting to the Minister of Finance and the minister with responsibility for the relevant industry will be required upon any acquisition of shares in a Japanese company falling under the specified list of sectors that require mandatory pre-foreign investment screening, which will be required in up to 30 days. The list includes certain common sectors such as:
The current criteria for appointment of an external auditor or supervisory body by Limited Liability Companies are changed as follows:
Implication
Companies which have appointed an auditor will have the option to revoke the appointment considering this change in the criteria.
Mexico's Labor Reform 2019 imposes stricter obligations on employers
The Mexican Federal Law (“LFT”) stands amended on May 1, 2019. The changes affect all employers in Mexico having any workforce. The employers face additional obligations as well as certain prohibitions:
Employers will have to change the work contracts of the workers enabling them to add beneficiaries in case of the death of the worker. Employers must identify the psychosocial risks which the employees face (stress, anxiety, etc.) and develop an action plan for combating or reducing such risks. In addition, employers should review the labor contracts every four years taking into account the workers approval. Employers should maintain certain registers of temporary workers and should ensure that there is no discrimination on grounds of sex, religion, caste, gender, etc. by devising a protocol to check such discrimination.
Employers must ensure that pregnant employees are not deprived of social security benefits in the event of the termination of the labor contract.
One of the most important changes is the overhaul of unions and how workers can participate in them. The worker can now freely decide to engage in collective bargaining and to organize and join a union. The new law will help unions to be independent and not company controlled.
Implication
Employers should review their employment policies/human resource policies as well as employment contracts/agreements to incorporate the recent changes made in Mexican Labor Reform.
Netherlands’ Ultimate Beneficial Owners register effective from January 2020
The Netherlands will introduce the requirement of Ultimate Beneficial Owners (“UBO”) register beginning January 2020, subject to the legislative process in the Dutch parliament. A UBO is:
Each newly incorporated entity is required to obtain information on the persons who are ultimately beneficial owners. The Dutch UBO register will be part of the Dutch Trade Register and upon the register being in place, existing entities will have 18 months to register the details. A branch is exempt from the UBO obligation. The details of a UBO will be publicly available.
UBO details available publicly will include:
Furthermore, the Dutch government will have access to the following information:
Implication
Every company incorporated in the Netherlands may be required to identify the Ultimate Beneficial Owners in the company for the purpose of reporting, if the act comes into effect in 2020.
South Korea has introduced a simplified reporting of salary information. Bi-annual submission of the 'Simplified Statement on Wage and Salary Income Payment' will now be required to be submitted to the South Korean National Tax Service (NTS) by all employers from 2019. The first statement submission of the 'Simplified Statement on Wage and Salary Income Payment' is within 10 days after six-months for the period ending on June 30, 2019.
Submission timelines
The new reports must be submitted within 10 days following the end of each six-month calendar period.
Sr. No. |
Reporting period |
Due date |
1. |
For the period from January 1 to June 30 |
July 10 |
2. |
For the period July 1 to December 31 |
January 10 |
In case of a business closing, the statement must be submitted within 10 days of the date of cessation of the business.
Implications
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