Macau is at a key moment in its tax reform agenda with the progressive implementation of new Transfer Pricing rules in the corporate income tax framework. These changes are part of a broader agenda to modernize the tax system, align local regulations with international standards, and strengthen the government’s enforcement capacity in the face of growing global scrutiny of the tax practices of multinational groups.
Regulatory framework and entry into force
On January 1, 2024, the new Profits Tax Law came into force, establishing a more structured, progressive, and transparent tax system. In particular, formal Transfer Pricing provisions are introduced for the first time in Macao, which will gradually come into force from the 2024 fiscal year and will be reinforced with the full implementation of mandatory documentation by 2025.
The new provisions focus on transactions between related parties, with the aim of ensuring that the prices agreed are in line with market conditions (arm’s length principle), and seek to prevent the erosion of the tax base and the artificial transfer of profits to lower tax jurisdictions.
Documentation requirements and thresholds
Starting in fiscal year 2025, taxpayers subject to the new rules must prepare and maintain Transfer Pricing documentation, which will include both the master file and the local file, in line with the recommendations of the OECD’s Action Plan 13 on BEPS (Base Erosion and Profit Shifting).
The requirements will apply only to taxpayers whose annual turnover exceeds MOP 100 million (approximately USD 12.5 million). In addition, a separate threshold is contemplated for the obligation to file a Country by Country Report (CbCR), applicable to multinational groups with consolidated revenues exceeding MOP 7 billion (USD 875 million), reflecting the global BEPS Pillar 3 standard.
Although the automatic filing of files with the tax administration will not be required initially, they must be available in the event of an audit or formal request.
Methodologies and scope of audit
The rules allow the use of any of the five traditional methods recognized by the OECD (comparable price method, cost plus method, resale price method, transactional net margin method, and profit split method), provided that their application is justified as the most appropriate for the case under review.
The Macao tax authorities may adjust taxable income, even retroactively, if it is found that the agreed prices do not reflect market conditions. In such cases, taxpayers must demonstrate that their Transfer Pricing policy is based on sound functional analysis, adequate comparability studies, and sufficient documentation.
In addition, specific provisions on correlative adjustments are incorporated to mitigate cases of double taxation, provided that mutual agreement mechanisms exist with the relevant jurisdiction.
Implications for taxpayers
The entry into force of these new rules represents a substantial change in Macao’s tax regime, which has historically been perceived as a low-tax jurisdiction with less regulatory complexity. Taxpayers—particularly those that are part of multinational groups—should take immediate steps to ensure adequate compliance.
This includes reviewing existing Transfer Pricing policies, preparing or updating technical studies, adapting accounting systems, and training internal staff on international taxation. Companies already operating in other jurisdictions with similar regulations can leverage their previous experience to adapt their procedures to local requirements.
Final considerations
With this reform, Macau is taking a firm step towards integration with international tax standards. The implementation of Transfer Pricing rules aligned with the OECD responds not only to a global requirement but also to the need to preserve the integrity of its tax base in a context of increasing international competition and transparency.
For companies, this change represents both an operational challenge and an opportunity to strengthen their tax governance and avoid the risk of penalties or tax disputes. Advance preparation and strict compliance will be key in this new phase of Macao’s tax regime.
Source: https://www.iflr.com/article/2f3x3x4wmbt66hlgeisqo/sponsored/countdown-to-macaus-transfer-pricing-rules-under-profits-tax-reform