Tax Directives Push Investment Flow to Asia

From July 1, 2011, both jurisdictions will implement the European Union Savings Tax directive, which requires EU member states to exchange information regarding customers who have savings in one jurisdiction but live in another.

The significance of this announcement is the reflection of two growing trends in banking: the trend of cross-border information sharing, and the global trails of assets flowing into Asia and developing economies in reaction to this. While these two jurisdictions are not actually part of the EU, they will implement this directive and subsequently impact any EU resident that has a bank account in the Channel Islands or Isle of Man. Any interest you have earned on your account will be taxed and that tax will be withheld, according to this directive.

In an effort to help each EU member country retain its citizens' taxes, these island jurisdictions are eliminating the banking advantages they used to offer.

Measures such as these contribute to the influx of assets moving into Asian financial centres, such as Hong Kong and Singapore. European and Western economies have been cracking down on legal tax loopholes, using EU and OECD influence to encourage information exchanges between countries, and putting blanket policies in place to curb tax evasion. But these can be problematic solutions. There are legitimate reasons for account holders to require privacy in banking. These are mainly focused on asset protection and could involve people being deployed to work in countries with politically unstable climates. Unfortunately, these policies that have been aimed at curbing wrong-doers, have bought greater attention to the offshore banking, or offshore investment, industry as a whole.

Jurisdictions in Asia are attracting a lot of interest from investors and entrepreneurs looking for legitimate, and efficient, jurisdictions in which to invest. Singapore and Hong Kong bank accounts are considered the best locations the world over for banking, protecting assets and registering a company. In an era of heightening transparency, capital assets will continue to flow to Asia. Both of these Asian island nations are governed under regulations similar to Western systems. As both jurisdictions are non-EU members, they are not affected by the EU Savings Tax Directive. As a bonus, Asian investments flourish with opportunities in developing economies, such as China and India, thanks to regional proximity.

The attraction of Singapore and Hong Kong is not only favourable investment regulations but also exceptionally competitive economies and world-class infrastructure suitable for operating an international company. The growth in Singapore company registration continues year-on-year. The latest figures from the Singapore Statistics show that companies were incorporated in Singapore during the first quarter of this year. These new Singapore start-ups are not focused on few industries but rather spread across a range of sectors as evidenced by the split of new company registrations. There has also been significant growth in Hong Kong company formation with approximately 40% more private companies being registered in HK during 2010 as compared to 2008.

Both jurisdictions offer entrepreneurs business friendly environments with world-class infrastructure and attractive incentives for setting up a company. Both jurisdictions consistently feature in international recognised surveys that compare countries around the world based on aspects that contribute to business friendliness. Increased scrutiny from the OECD and various tax authorities reduces the traditional options for offshore bank accounts, or offshore investing. Offshore banking in jurisdictions such as Singapore and Hong Kong are a legitimate strategy. Investors and entrepreneurs looking for legitimate asset protection, low tax obligations and stable political and economic environments continue to be attracted to such jurisdictions for not only banking but also for setting up business operations.