On 1 December 2022, the Government Legislation Centre published proposed regulations to waive the collection of flat-rate corporate or personal income tax (withholding tax).

The proposed legislation will replace the Finance Minister regulations of 31 December 2018 on the full or partial disapplication of the pay-and-refund mechanism in corporate income tax and personal income tax, which are currently in force. The new law will address the following matters:

First of all, for clarity, the proposal removes clauses that have become outdated due to:

  • the amending legislation that, with effect as of 1 January 2022, made changes to the list of income sources subject to the pay-and-refund mechanism;
  • the fact that certain time periods set out in the 2018 regulation have already passed;
  • the central banks waiver having been considered moot.

Secondly, the proposal sets out where the pay-and-refund mechanism will continue not to apply also under the new law, including continued disapplication of the pay-and-refund regime with respect to payments for use of, or right to use, industrial devices. Disapplication will in this case continue to depend on satisfaction of conditions for use of preferential treatment (non-withholding or use of reduced rate or exemption) under special regulations or double tax treaties.

In addition, the new law proposes to extend until 31 Dec 2023 the disapplication of pay-and-refund mechanism with respect to payments made via so-called technical agents, meaning in cases referred to in Article 26(2c) of the CIT Act and Article 41(4d) and 41(10) of the PIT Act which concern entities that operate securities accounts or omnibus accounts.

The proposed new law is expected to enter into force on 1 January 2023.

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