French President Hollande’s 75% Tax on Rich – Will Investors Bid Au-revoir?

France went to the polls on Sunday, a poll which resulted in the dumping of the incumbant Nicolas Sarkozy for a new left-wing president, Francois Hollande. This election paves the way for Francois Hollande’s Socialists party to introduce a new approach in handling the harsh austerity measures being enforced by EU leaders, an area where former-president Sarkozy was seen to be overly submissive. As with most country leadership changes, it is likely to bring a different approach in economic policies aimed at combating the EU’s financial crisis and bringing growth for France.

One particular campaign promise, which the President elect had made, is drawing widespread attention across financial circles: a new 75% tax on top earners (annual income of Euros 1m+ euros (approximately USD$1.3m). But rather than benefitting France, could this put off potential investors and high income professionals from wanting to live and work in France? There is the potential that this could lead to an exodus of talented working professionals and business owners to other tax-friendly countries. The BBC has coverage of the election and the new parties policies.

An article by the Guardian has shed some light on how efforts to fight tax evasion are progressing. It provides an update of the offshore banking sector, after numerous bilateral tax treaties that countries signed with offshore centres in the last couple of years. Contrary to most expectations, the OECD’s bid to control monetary flow to tax havens may not have succeeded, as data from the Bank of International Settlements (BIS) show that offshore tax centres held USD$2.7 trillion (£1.7 trillion) in 2011, similar to the numbers in 2007, however it illustrates that growth has been halted.

Some experts believe this is due to weakly worded tax treaties between jurisdictions that only allow authorities to scrutinise accounts when sufficient evidence of tax evasion is presented. This is understandable as the majority of entrepreneurs & investors who use offshore banking do use legitimate strategies with low-tax jurisdictions as part of their investments and banking operations.

Furthermore, data shows that deposits are simply shifting from one offshore centre that is more compliant to tax treaties to others that are less compliant. Bank deposits in Jersey fell USD$110 billion over four years, as the island signed 15 tax treaties with other countries, while Cyprus, which signed only two tax-treaties to meet OECD criteria, saw a rise of 60%. This shows that offshore bank accounts and offshore companies are still popular and viable options for corporate bodies to keep their financial assets.

Over in the US, President Obama is planning to introduce a new five-point “to do” list for lawmakers that entails job creation and business cost-saving ideas to turn around the country’s dwindling employment rate. A business tax cut that provides a 20% credit for companies who move operations back to the United States is an attractive lure; as well as a 10% income tax credit to SME’s that increase their employee head count.

This shows that setting up a company in the United States could provide business owners and entrepreneurs with attractive tax breaks that can lower the overall costs of their business operations.

How Apple uses Offshore Tax Efficient companies & other news

How does Apple use offshore tax efficient companies? According to a report by The New York Times, Apple avoids paying billions in taxes by setting up micro-offices around the world to collect and invest Apple’s profits. Following reports of Apple paying a small portion of their profits as taxes, there has been a rise in the number of reports scrutinizing Apple’s tax payments. The report refers to Apple having set up offices in Nevada, Ireland, Luxembourg, the British Virgin Islands (BVI), and other jurisdictions that have low or non-existent corporate tax rates. This prompts many to consider the idea of utilizing offshore tax efficient companies as a legitimate cost saving method. More about this can be found on Yahoo news.

Over in Europe, the European Central Bank (ECB) has plans to hold back on funds to cash-strapped governments as it believes the political resolve to rein in deficits is showing signs of trouble. A growing number of European countries are baulking at the austerity measures the ECB demands, with massive protests in Greece, Italy and Spain. This poses problems to the European countries who are facing a looming recession, as fiscal prudence at this point in time would only lead to a prolonged and severe recession period. Some want to consider the previous agreements for cost-cutting between the ECB and struggling European countries to include growth measures as part of the deal this time.

Singapore’s Ministry of Manpower’s Research and Statistics Department has released new data, showing that Singapore’s jobless rate has risen to 2.1% in March despite of a fall in the number of layoffs early in the year. This is attributed to fewer jobs being created in the first quarter, with around 27,400 jobs added as compared to 28,300 new jobs in the first quarter of 2011. Approximately 3,250 workers were laid off in the first quarter of 2012, coming largely from the service and manufacturing industries. However, the Monetary Authority of Singapore (MAS) expects an economic growth of 1%-3% for 2012, assuring investors that Singapore company registration is still a safe bet.

UK housing prices have risen for a second straight month, even though its demand fails to keep up with rising supply, Bloomberg reports. April home values showed a rise of 0.1%, on top of a 0.2% rise in March. Experts believe this is fueled by concessions buyers stand to gain from a tax holiday on some homes, however, prices are expected to fall over the global economic uncertainty and the outlook of euro zone economies.

In an attempt to drive up the nation’s GDP, Spain intends to raise indirect taxes on sales of cigarettes and alcohol, potentially boosting 2013’s tax revenue by 8 billion euros. This follows data revealing that Spain’s unemployment rate rose to an 18-year high of 24.4 percent in the first quarter of 2012, which sparked talks that Spain might be on the verge of an economic recession. Indirect taxes are believed to have the least impact on growth, which makes it somewhat safe for the government to raise in order to bolster Spain’s budget deficit. This would allow Spain to maintain its labour competitiveness as the tax burden is shifted to affect consumerism instead.

How Singapore’s Economy is Stronger than you think & other news

Singapore’s economy has proven that it is capable of weathering the global economic slowdown, with estimates from its Ministry of Trade and Industry (MTI) showing that the country’s gross domestic product (GDP) rose 9.9% compared to the same quarter last year, overcoming a 2.5% contraction in the previous quarter. This is potentially good news for investors who were afraid that the implications of the Eurozone debt crisis would adversely affect economies around the world during this year. Overseas investors and small businesses looking at Singapore company incorporation can be confident that it will be able to weather harsh global economic situations, giving their businesses a strong platform to grow and develop.

The Monetary Authority of Singapore (MAS) has tightened its monetary policy as a measure to combat inflation in Singapore. On the positive side, a stronger Singapore dollar would ease the effects of import inflation, which is a major issue considering Singapore’s high import reliance. However, one negative aspect is that prices of exports will likely rise, which dampens export price competitiveness. Experts believe that the MAS is being optimistic about Singapore’s economy after a stronger-than-expected GDP growth in the first quarter, giving them the go-ahead to let the Singapore dollar rise to ease the brunt of higher inflationary costs on lower income households.

Over in China, the value of the yuan has fallen after a move by Beijing to loosen its tight controls over its currency value. The widening of the yuan’s trading band was done in a bid to appease major critics who criticized China for artificially undervaluing its yuan, which gives its exports an unfair competitive edge in global markets. Expectation was for the yuan’s value to rise once China loosened its controls on its currency. The drop could be due to the changing economic conditions that had moderated China’s growth prospects, showing the world that the yuan was actually valued fairly. However, analysts still believe that once market conditions have normalised, the value of the yuan is likely to appreciate in the long run.

Foreign Direct Investment (FDI) in Columbia has risen by 30.2% in the first quarter of 2012 to $4.2 billion, compared to the same period the previous year. This was largely boosted by oil and mining investments into the country after many new areas were opened up for economic development. Internal conflict that plagued the country has been largely subdued by military pressure from the US-supported Colombian army. This has paved the way for investors and companies to shift their business operations to Colombia, to take advantage of untapped opportunities through offshore company incorporation.

The Sydney Morning Herald reports that fewer businesses are taking out new loans, with the number of loans issued falling for the fourth straight month in February 2012. This alludes to the uncertainty about the economy and the direction the interest rate is going in Australia. Last Friday, ANZ bank raised interest rates for small business loans for higher profits, against the Reserve Bank of Australia (RBA)’s stance on keeping the interest rate on hold. This raises several questions, as even though most Australian banks align their rates against RBA’s, they have not ruled out following ANZ’s lead. This cloud of uncertainty strongly discourages businesses from taking out new loans with the interest rates offered by the banks, and it dampens investor confidence heavily. The RBA is currently waiting for the latest consumer price index (CPI) inflation data before making its next interest rate decision. Regardless of how the CPI data looks it is difficult to see a rise in consumer confidence Down Under anytime soon.

President Obama allows Private Companies to Source for Funds & other news

Recently, President Obama has signed into law crowdfunding provisions within the United States’ JOBS Act. The provisions aim to allow private companies to raise up to $1million annually, and investors can channel the funds to these companies on U.S. Securities and Exchange Commission (SEC)-registered websites. This would help entrepreneurs and small business owners overcome funding troubles and allow them to grow and develop their businesses. The rules and registration process are likely to be implemented in early 2013.

The Daily Mail included a recent article about Apple and how despite making a cool £6 billion in the UK, the company paid only £10 million in corporate tax in 2010. This surprising piece of data released by the widely popular technology firm has not only drawn the attention of the average Joe, but also the tax authorities in countries where it holds its cash reserves. This raises suspicions that the company could be avoiding tax payments on the sales of their highly popular Apple products. These stories are not new and Apple isn’t the only multi-national company to use legitimate offshore company strategies. A comparison between the UK and Ireland shows a distinct corporate tax advantage as the UK’s 24% is significantly higher than Ireland’s corporate tax rate of 12.5%.

Iran’s inflation rate reached a staggering 21.5%, according to official data published by the Iranian central bank. After being pushed by high import costs due to its weak currency and international sanctions imposed by its trade partners, Iran’s economy is trying to stay on its feet as it faces criticism for its nuclear program from other countries, as well as growing dissent about rising prices within the country. The prices of goods and services rose 12.4% in 2011, increasing from a low of 8.8% in August 2010; and in an attempt to help Iranians cope with rising inflation, the government boosted the monthly cash payments to all citizens by over 50% in March. More information can found in this article on the Arab Times website.

Over in the UK, the Institute for Public Policy Research (IPPR) has produced a report predicting that Britain’s unemployed numbers are set to rise, with almost 5,000 Britons becoming jobless in every week till the end of August. Britain’s current unemployment figure stands at approximately 2.6 million, with a large majority of those being young adults and mature age job seekers 50+ years. Unfortunately, cost cutting forced by economic downturn often includes retrenchment of workers.

Guangzhou authorities have introduced a new initiative that aims to provide small and medium enterprises with new opportunities to raise much needed capital for their business operations. 150 million yuan is being invested by the city and district governments to construct a ‘financial street’, which will see privately run banks, stock and futures companies, small loan firms, pawnshops, and other firms setting up their businesses along Changdidamalu Road in Guangzhou’s Yuexiu district. The official unveiling of the ‘financial street’ in May 2012 will allow fund-strapped firms to easily compare loan rates and obtain a loan that suits their firms’ risk appetite. At the same time, give them the opportunity to expand and develop their business operations. This would likely boost the number of growing businesses within China, and further drive the country’s economic progression. China WFOE incorporation is a strategy that allows foreign entrepreneurs to conduct business within China.

Two Asian Tigers – Singapore & Hong Kong

Singapore and Hong Kong, 2 members of the Four Asian Tigers, are among of the most popular jurisdictions that companies seek to incorporate their businesses in. There are multiple reasons why Singapore companies and Hong Kong companies are attractive to foreign entrepreneurs and established businesses; one could be due to the imparting of the country’s image to its companies. Singapore boasts a solid working culture, a low crime rate and a highly urbanized environment, which undoubtedly gives customers and clients a good first impression of the company.

Going to the technical benefits, Singapore imposes a flat 17% corporate tax rate, which is among the lowest in Asia where the average is slightly above 23%; its low crime rate dropped 7% to its lowest in 20 years in 2012. Singapore’s reputation as a successful business hub allows companies in Singapore to be just as respected and recognized.

Hong Kong holds steady as one of the world’s leading international financial centres, ranking number 1 on the Index of Economic Freedom since 1995. Similarly, its reputation as a highly developed economy bodes well for investors and companies in Hong Kong. Company incorporation in Singapore and Hong Kong are just the first steps to establishing a successful and competitive company.

Healy Consultants has extensive experience in setting up companies in Singapore and Hong Kong for ambitious business people. Ask us for more information on how these two jurisdictions can be beneficial for your business objectives.

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