Hong Kong tax update
Tax havens under increasing pressure
The global tax landscape has been changing quite a lot over the past few months, with more and more tax havens and offshore asset management centers giving in to demands by governments and regulators to increase transparency and open their books to official scrutiny. The heat is on five tax havens in particular: Andorra, Liechtenstein, Monaco, San Marino, and Switzerland. Traditionally the world’s main tax havens, these territories were singled out by Irish finance Minister, Michael Noonan, and EU tax commissioner Algirdas Semeta, and urged to reveal information which could aid tax collection and prevent value-added-tax fraud.
Hong Kong is still seen as a legitimate jurisdiction to do business, though it is sill being affected by the changes sweeping the industry. For example, much of Hong Kong’s offshore business is done through the Cayman Islands, which has just joined a scheme with the UK, France, Germany, Italy and Spain to implement automatic exchange of tax information, and has encouraged other jurisdictions to commit to the same initiative. In a report by the South China Morning Post, Manisha Michandani, director of the Risk Reduction Group consultancy, said that people in Hong Kong and China would feel the implications of these changes soon enough. While these developments should not have much of an effect on the way assets are managed, those looking for privacy may be forced to seek alternative solutions to meet their offshore banking needs.
New Tax Treaties
On the other hand, there have also been positive developments for Hong Kong. It signed a Double Taxation Agreement (DTA) with Guernsey and a tax treaty with Canada. The DTA with Guernsey is a culmination of extended cooperation with Hong Kong and China since 2006, which also saw the signing of a Tax Information Exchange Agreement with China in 2010. Guernsey businesses have been permitted to be listed on the Hong Kong Stock Exchange since 2011, and the DTA will serve to deepen the relationship between the two territories, and ease the process of doing business.
The tax treaty with Canada, which was signed on also deals with the avoidance of double taxation, while at the same time protecting against income tax evasion. The tax treaty came into effect on January 1 this year after being ratified in accordance with both countries’ laws.
In other news, a report by the Hong Kong Federation of Insurers (HKFI) has suggested means for Hong Kong to boost its attractiveness as an international maritime center. Some of its recommendations include double tax deductions to encourage Hong Kong shippers and exporters to place insurance locally. It also mentions that despite recent DTA signings, Hong Kong remains a laggard, with agreements with only half its top 20 trading partners. This stands in contrast to Singapore and China, which have around 50 DTAs each.
The HKFI is keen to see Hong Kong top the list of the world’s biggest ports. When once it was the busiest port, it now ranks third behind Shanghai and Singapore. Singapore currently provides tax exemptions and financial support schemes to attract maritime business, with many seen to continue for a long period.