Macao complementary tax levies are governed by the Law No. 21/78/M of 9th September 1978, ‘Regulations of Complementary Tax'. The Regulations have been modified many times since its promulgation in 1978. The complementary tax is equivalent to income tax or profit tax in other countries and regions. Macao complementary tax is regarded as a complement to the levies of industrial tax, professional tax and urban property tax.

Individuals and corporations, irrespective of their residence or location of head offices, who carrying on commercial or industrial activities in Macao are subject to complementary tax on income arising in or derived from Macao. Taxpayers subject to complementary tax are classified into two groups, group A and group B.

Group A taxpayers are those who have maintained appropriate accounting books and records, including anonymous companies with limited liability, companies limited by shares, etc., and any companies with registered capital not less than MOP1,000,000 or with annual average taxable profits for preceding three years of more than MOP500,000. Individuals or companies with appropriate accounting books and records may elect to be assessed under the group A category by filing applications to the Macao Finance Services Bureau. The annual financial accounts prepared by group A taxpayers should be audited and counter-signed by accountants or auditors registered with the Finance Services Bureau. Group A taxpayers’ tax liabilities are assessed by the tax authority based on their financial accounts submitted, subject to tax adjustments determined by the authority.

Group B taxpayers are those individuals or corporations without appropriate accounting books and records. Tax liabilities of these taxpayers are determined by the tax authority on deemed profit basis for Macao tax purpose.

All taxpayers are required to submit complementary tax returns within prescribed periods set out in the Regulations. Group A taxpayers are obliged to file returns to the Finance Services Bureau in respect of preceding year between April and June each year, whereas tax filing period of group B taxpayers is between February and March each year.

The Regulations define the income that means receipts from carrying on commercial or industrial activities such as sales of goods and services rendered, financial income, and so on, whether in recurrent or occasional nature, principle or incidental, are all subject to complementary tax.

Article 21 of the Regulations provides that those outgoings and losses incurred in activities directed toward the production of income are allowed as deductions of such income. It, for example, encompasses operating costs and expenditures, personnel expenses, financial expenses, and allowable depreciation and loss provisions. The deduction for depreciation is set out in the Decree-Law No. 4/90/M "Regulations of Depreciation and Amortisation on Fixed Assets" which classifies fixed assets into 10 general groups and defines the prescribed depreciation rates for each category of fixed assets. The deduction for provisions is defined in Article 25 to include the allowable provisions for bad debts and stock losses. The Article states that provision for bad debts not exceeding an amount equal to 2% of accounts receivable balance at end of financial year is deductible, while maximum deduction for stock loss provision is restricted to 3% of closing stock value. Certain expenditures may be disallowed by the Finance Services Bureau, such as proportion of entertainment and travelling expenses that the tax authority considers excessive, complementary tax payments and tax penalties, etc. Loss incurred by a group A taxpayer in one financial year may be carried forward and deducted from the taxpayer’s taxable profits of succeeding three financial years. Taxpayers other than group A shall not be entitled to such deduction of losses carry-forward.

Annual taxable profit over MOP32,000 is taxed at rates ranging from 3% to 12% as follows (effective from tax year 2004):