Tax of Undistributed Surplus Earnings to be Increased to 15%

On March 28, the proposed amendment to Article 66.9 of the Income Tax Act passed the 2nd reading at the legislature's finance subcommittee, which will increase the current tax of undistributed surplus earnings of businesses from 10% to 15%. This surplus earning tax has been in effect since 1996; however, some material shareholders of corporations tend not to make profit distributions to the shareholders in fear of the much higher personal income tax rates being applied to them. This has become more evident lately, especially when the country adopted the imputation tax system where the corporate income tax paid at the corporate level may be imputed as credit in the computation of shareholder's personal income tax, and the rate of the corporate income tax was recently reduced from 25% to 17%. According the Ministry of Finance, this is the right time to do this given the fact that it was not introduced at the time the imputation tax system was adopted.