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The Banking Tax & Finance team can offer 'tax' advice in the following overseas destinations:

Australia

The Capital Allowance regime in Australia applies to all capital investments, including buildings and depreciation is available on all property regardless of age.  Since July 2001, a Uniform Capital Allowances system (UCA), based on the effective life of assets, applies to all depreciable assets.  Taxpayers can either self-assess the effective life of plant, or use the Tax Commissioner's published schedules of effective life, which provides statutory limits on the effective lives of certain assets.

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Canada

Canadian tax law provides for the Capital Cost Allowance system (CCA), which allows a business to claim a calculated portion of the cost of equipment and property as a deduction from income tax over a period of years for the loss in value of the capital asset due to wear and tear or obsolescence.  The amount of CCA that can be claimed each year depends on when the property was acquired and to which CCA class it belongs.  The Canada Revenue Agency has assigned classes to particular types of depreciable property and assigned rates for each class.

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India

Depreciation of assets is based on actual cost and is usually calculated on the declining balance method.  Residential buildings and other buildings such as offices, factories and hotels are depreciated at 5% to 10%.  This depreciation rate, however, can be accelerated on plant and machinery at 15% and on new plant and machinery acquired on or after 1st April 2005 may be available at 20% of the actual cost, subject to certain conditions.  The environmental design elements of a building can be depreciated at 80% and 100%.  Depreciation is allowed at 100% after 1st September 2002 for water-supply projects or water-treatment systems put to use as infrastructure facilities.  Depreciation is 50% of normal rates if an asset is used for less than six months per year. Capital assets purchased for scientific research may be written off in the year in which the expenditure is incurred. The Special Economic Zone Act 2005 provides tax exemption in 260 SEZs as an incentive to attract foreign direct investment.

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Malaysia

Davis Langdon has been providing Capital Allowances services to clients in Malaysia for over 20 years.  In that time we have obtained extensive experience and understanding of the local market through preparing clients’ claims for the Inland Revenue Board of Malaysia.  The regime in Malaysia has similarities to the system in the UK.  In Malaysia a 20% initial allowance is given on plant and machinery.  A 10% initial allowance is given on industrial buildings, followed by a 3% allowance in subsequent years.  A 10% special annual allowance is also available on certain other building types used for specified purposes.  Allowances may be claimed on the purchase of existing buildings as well as new construction projects.

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Netherlands

Special provisions were introduced in 1 January 2007, in principle limiting depreciation for immovable property. A distinction is made between real estate held for investment purposes and property used in a trade or business.  For tax purposes, an investment property cannot be depreciated to an amount less than the property’s fair market value.  The value is determined annually by the municipal tax authorities.  The depreciation of buildings employed in a trade or business is limited to 50% of the property’s value for tax purposes.  The straight line method of depreciation is most commonly used, although the declining balance is sometimes chosen.  Tangible assets used by a company for the purposes of a trade can be depreciated if their values diminish over time.  Depreciation begins on the first day an asset is used.  Under the new rules from 1 January 2007, the depreciation of some fixed assets is minimized to five years.  The new rules also affect fixed assets acquired before 1 January 2007 and transitional rules are applicable.  A limited transitional provision for recent investments in buildings allows depreciation according to current rules for a period of three years.  The law provides for accelerated depreciation of specific assets, for example, assets at least 30% of which environment-improving results accrue to the Netherlands and that appear on the special VAMIL (Vervroegde-Afschrijving-Milieu-Investeringen-List).

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Poland

Depreciation is treated as a tax deductible cost. The maximum rates are provided by law; the allocation should be made in accordance with the Ministry of Finance Decree and the Classification of Fixed Assets, which includes descriptions of the rules regarding the allocation of items to asset codes.  The taxpayer cannot arbitrarily allocate items to other asset codes, but can apply to the Statistical Office for interpretation.  Polish legislation provides investment incentives in fourteen Special Economic Zones, which offer income tax exemption up to 65% of investment expenditure and if the amount available for deduction exceeds the annual Corporate Income Tax due, the excess can be utilised in the following years.  It is possible for businesses which run activities in the Special Economic Zones to enjoy total income tax exemption for a considerable period.

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Singapore

In the 25 years Davis Langdon has been advising Singapore clients, we have obtained considerable experience and local knowledge in dealing with the Inland Revenue Authority of Singapore.  The regime in Singapore has similarities to the system in the UK.  The relevant statute is the Singapore Income Taxes Act 1967 and the law is relatively simply structured, allowing claims for plant and machinery, as well as industrial buildings allowances.  We were directly involved in the only local relevant Capital Allowances case law in 2005.  In Singapore, Capital Allowances include an initial allowance in the year of acquisition, plus an annual allowance.  The initial allowance for plant and machinery is 20%, with annual allowances of 13.3% on a straight-line basis for manufacturing and industrial processing plant and machinery, 8% for furniture, fixtures and telecommunications equipment and 10% for data handling equipment.  Industrial buildings are granted a 25% initial allowance and annual allowances of 3% of qualifying cost on a straight-line basis.  Accelerated annual allowances of 33.33% are granted to all qualifying plant and machinery and 100% allowances are granted on all computer and prescribed automation equipment, generators, robots, pollution control equipment and energy efficient or energy saving or noise controlling or chemical risk producing equipment.  The Inland Revenue Authority of Singapore provides examples of plant for Capital Allowances purposes and has, for example, only recently published a concession allowing for carpets and Venetian blinds in office buildings.

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Sri Lanka

The regime is capital allowances based and in ascertaining the total income liable to income tax, deductions from revenue are permitted for outgoing and matching expenses incurred in producing the income, including special deductions for an allowance for depreciation by wear and tear, calculated at 25% of the cost of any information technology and machinery used for the construction industry for a period of four years, at 20% for a period of five years of the cost of acquisition of furniture, at 12.5% for a period of eight years of the cost of any other plant and equipment and at 6 2/3% for a period of 15 years of the cost of any qualified building.

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United States of America

The allocation of acquisition or construction costs of a building between real and personal property is based on legislation, case law and Internal Revenue Service guidance.  Capital costs must be recovered by using the Modified Accelerated Cost Recovery System.  The system is designed to match asset class lives with the economic or useful life of assets and is defined by a series of tables in the legislation.  The correct classification of capital expenditure on a building or facility between structural and non-structural components allows investors to claim accelerated tax depreciation and defer income taxes.  Typically a building will be depreciated over 39 years (commercial real property), or 27.5 years (residential real property).  Cash flow can be maximised by reclassifying items to either 5 or 7 year personal property, or 15 year land improvement property, using either an invoice or engineering approach.  Longer recovery periods apply to property outside the USA.

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United Kingdom

Accounting charges for tax depreciation and amortisation are not deductible but there are Capital Allowances for capital expenditure on plant and machinery.  Capital Allowances are granted in respect of assets purchased for a UK company's business, including those of a foreign branch.   There is no requirement for the alignment of tax and accounting depreciation, although timing differences are reflected under deferred tax adjustments for accounting purposes.  An annual writing down allowance is given on the reducing balance for qualifying expenditure on main pool plant, machinery and equipment and a special rate pool for qualifying expenditure for certain items of plant which are integrated into a building.  Expenditure on specified energy saving plant and machinery qualifies for 100% first year Capital Allowances.

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