The BVI Government passed new legislation requiring Registered Agents to record information on the beneficial with to the B.V.I. Government on a secure search system. The Beneficial Ownership Secure Search System Act, 2017 (the “Act”), created the Beneficial Ownership Secure Search System (“BOSS system”). This law supplements the existing law that orders Registered Agents to collect and maintain beneficial ownership information. The information that will be available through BOSS will be name, residential address, date of birth, and nationality of each beneficial owner of a BVI company.
The Act, entered into force June 30th, 2017 to provide the legal framework for recording accurate beneficial ownership information and the disclosure of that information to law enforcement authorities in countries with which the BVI has signed bilateral agreements.
Currently, the B.V.I. can only accept requests for beneficial ownership information from the United Kingdom. The information accessible through BOSS will be the name, residential address, date of birth and nationality of each beneficial owner of a BVI company.
What is BOSS?
The BOSS system is a decentralized data depository wherein each Registered Agent keeps the information on a segregated, encrypted database accessible through a private key. BOSS claims that the data can be protected from cyber-attack while the information uploaded to the BOSS system and while it is at rest in the Registered Agent’s database. The infrastructure of the system has been set up in a secure, stable G7 jurisdiction trusted by and independent of the BVI and the UK. The information on BOSS can be exchanged with the United Kingdom within 24 hours.
The BOSS system allows a search to be conducted across all of the separate Registered Agent beneficial ownership information databases. The searches cannot be traced and are invisible to Registered Agents.
Currently, searches will only be conducted upon receipt of a legitimate search request from the UK Financial Intelligence Unit of the National Crime Agency in compliance with the Exchange of Notes.
The Act applies to all BVI business companies, except those companies that were struck off the Register of Companies before 1 January 2016 and which have not been subsequently restored.
Prescribed Beneficial Owner Information
The information to be collected on the beneficial owner of a company is: (i) name; (ii) residential address (iii) date of birth and (iv) nationality. (In cases where the beneficial owner is a company - see 'Definition of a Beneficial Owner' below - the prescribed information is: (i) name/alternative names; (ii) incorporation number or equivalent; (iii) date of incorporation; (iv) status (e.g. active/dissolved); and (v) registered address.)
Each company must identify and inform its Registered Agent of its beneficial owners within 15 days. Any changes to the beneficial ownership information must be communicated to the registered agent within 15 days of the change.
Registered Agent Obligations
Registered Agents must create a database which is accessible to the BOSS system and upload to it beneficial ownership information for each of the companies under their administration by 30 June 2017. Registered Agents must also upload any changes to the beneficial ownership information communicated to them by a company within 15 days of receiving such notification. The information kept on the Registered Agent’s database will be kept confidential and will be accessible only by the Registered Agent or a specially designated person from a BVI law enforcement agency.
Who is a Beneficial Owner?
The beneficial owner of a company (other than a company with securities listed on a stock exchange) is the natural person who owns or controls 25% or more of the shares or voting rights in a company or who exercises control over its management.
In instances where a legal arrangement such as a partnership or trust is the beneficial owner, the beneficial owner is the natural person who controls the partnership or the trust (e.g. the general/managing partner of a partnership or the trustee of a trust) or the natural person by whom the legal arrangement was made (e.g. the settlor of a trust).
Where a company is in insolvent liquidation, the beneficial owner is the natural person who has been appointed as liquidator and where the beneficial owner is deceased and was a shareholder in the company, the personal representative or executor of that shareholder’s estate is considered the beneficial owner for the purposes of the Act.
Who is an Exempt Persons?
(i) a company which is recognized, registered or approved as a mutual fund under the BVI Securities and Investment Business Act, 2010
(ii) a company whose shares are listed on a recognized stock exchange
(iii) a person licensed under BVI financial services legislation
(iv) the subsidiary of a mutual fund or a listed company; or
(v) a company exempted by regulations.
While the company does not have to provide the four pieces of prescribed beneficial owner information for exempt persons, it has to collect and provide the following prescribed particulars for the exempt person: (i) name/alternative names; (ii) incorporation number or equivalent; (iii) date of incorporation; (iv) status (e.g. active/dissolved); and (v) registered address. The company also needs to provide the reasons why the exempt person is designated as such.
What is a Registrable Legal Entity?
A registrable legal entity is a legal entity which would be considered a beneficial owner but for the fact that it is a corporate entity and to which one or more of the following factors apply: (i) it is an exempt person; (ii) it is a legal entity whose securities are listed on a recognized stock exchange; (iii) it is a licensee or a foreign regulated person; (iv) it is a sovereign state or a wholly owned subsidiary of a sovereign state.
For example, where the beneficial owner of a BVI company is a corporate entity which is owned by the government of a country or if the corporate beneficial owner is regulated in a foreign jurisdiction, the corporate beneficial owner can be recorded and the Registered Agent does not need to identify the natural person who owns 25% or more of the shares in the corporate beneficial owner.
The Registered Agent will need to record the same prescribed particulars for the corporate beneficial owner as it does for an exempt person, i.e. (i) name/alternative names; (ii) incorporation number or equivalent; (iii) date of incorporation; (iv) status (e.g. active/dissolved); and (v) registered address. The basis for the corporate beneficial owner’s designation as a registrable legal entity will also need to be recorded.
When does the Act enter into force?
The Act enters into force on 30 June 2017. By that time, Registered Agents in the BVI must have collected and uploaded the prescribed beneficial owner information onto their respective secure databases.
Compartimos con ustedes esta atinada opinión publicada en La Estrella de Panamá. La opinión es de nuestro respetado colega, Roberto Guardia, abogado, quien hace un análisis con respecto al trato que Panamá ha recibido luego de los llamados Panama Papers y su actual competitividad tributaria.
Por: Roberto Guardia, Abogado
A un año de los mal llamados ‘Panama Papers', como era de esperarse, el balance es negativo para Panamá. Pero, en nuestra humilde opinión, la mayor decepción no ha sido el ataque a nuestro país, sino la complacencia y la forma de ‘defendernos' de esos ataques por parte de nuestros dignatarios. Por otra parte, mucha gente, que quizá no está del todo informada con los temas de derecho tributario, incluso abogados, se muestra confundida sobre la definición del concepto evasión fiscal.
Lo peor del caso es que algunos, que se supone deberían ser entendidos en la materia, sorprendentemente repiten como papagayo los arbitrarios conceptos de los países miembros de la OCDE, a fin de hacernos creer o convencernos de que la planificación tributaria es un delito y la competitividad fiscal una estrategia equivocada para nuestro país, cuando esto es una completa falacia.
En primer lugar, debemos definir la evasión fiscal como un delito o falta administrativa, según el país donde este acto se cometa, y la planificación tributaria, como un derecho al que cualquier persona, natural o jurídica, le corresponde ejercer o no, si lo estima pertinente o conveniente. Una correcta planificación tributaria es la única herramienta de la que goza un emprendedor empresario, sea pequeño, mediano o grande, de un país abusivo fiscalmente, para defenderse de sus malsanas políticas de recaudación.
Cuando una planificación tributaria se hace correctamente, no se viola ninguna ley. Pero, a pesar de que ambas figuras son reconocidas por el derecho fiscal, la OCDE ha determinado equiparar la evasión fiscal a la planificación tributaria, haciendo ver que ambos son delitos, lo que no es ni legal ni moralmente correcto, ya que cualquier persona o empresa, puede hacer un intento de reducir el pago de sus impuestos sin violar ninguna ley y aprovechando las jurisdicciones que así se lo permitan. Hubiese sido interesante y digno de nuestra parte, como país libre y soberano, haberle planteado a la OCDE que, así como ellos pretenden que cambiemos nuestras leyes, ¿qué tal si ellos también cambian las suyas? Por ejemplo, que el impuesto sobre la renta de los países, a los que Panamá dará información, no deberá ser mayor al impuesto sobre la renta que se cobra en Panamá. En este caso 30 %. Es decir, que nuestro país no brindará información a países que sean abusivos fiscalmente con sus ciudadanos.
Podríamos usar la analogía de que Panamá no extradita a un nacional de un país donde el delito de que se le acusa tiene una pena mayor a la que se aplicaría en Panamá y así plantear una alternativa similar en materia fiscal.
El punto es que Panamá no tendría por qué dar información a países que tengan cargas tributarias abusivas y mayores que las que Panamá aplica en su territorio. Esto consideramos que podría ser razonable.
Es triste que el Gobierno esté más preocupado por firmar estos mal llamados tratados de intercambio de información (cuando en realidad serán de suministro de información de nosotros para ellos) y crear las condiciones para cumplir con los mismos, en perjuicio de inversionistas y empresarios que confiaron y confían en las ventajas históricas que ofrece nuestro país, en lugar de corregir el verdadero problema del suministro de información, que es el no cumplir con lo que se nos pide por vía judicial y en contra de personas que sí han cometido delitos y que han ensuciado nuestro centro financiero.
Parte de la mala imagen de Panamá ha sido que los requerimientos de las autoridades judiciales de otros países no se han atendido con prontitud. Como una pequeña prueba está ver cómo se dilató darle respuestas a los fiscales de Brasil en el caso LAVA JATO. Así mismo ha ocurrido con muchísimos casos igual de graves.
¿Por qué no atendemos esto? ¿Por qué no nos preocupamos de darle respuesta rápida a los requerimientos que se hacen sobre las personas que sí han cometido delito y que por ende ensucian nuestro sistema? Me refiero a delitos como narcotráfico, trata de blancas, tráfico de armas, corrupción de funcionarios, etc. En este suministro de información es que hemos debido y deberíamos concentrarnos, en lugar de dar información de índole fiscal sobre personas que no han hecho nada malo.
Pareciera que hemos decidido ‘tirar al agua' a la gente buena, que se dedica a actividades lícitas por el simple hecho de utilizar las ventajas de nuestra plataforma de servicios y ‘sapearlos' con sus abusivos fiscos y mirar para otro lado en lo que ha sido el verdadero problema que es, que, la información que deberíamos dar, ‘más rápido que ligero', le damos vueltas y vueltas y nunca la mandamos.
Así mismo pasa con el tema de la competitividad fiscal. Ahora resulta que Panamá no debe buscar alternativas económicas basadas en este esquema, porque la OCDE así lo determinó y nosotros debemos aceptar esto, porque ellos así lo dicen y punto. Aunque Irlanda, por poner un ejemplo, se levantó de una crisis económica profunda gracias a este tipo de leyes y se posesionó económicamente mejor que muchos otros países de la OCDE.
Esta cruda realidad, siempre ha incomodado tanto a los Gobiernos más socialistas de Europa que, en un absurdo total, la Unión Europea le pretende doblar el brazo a los irlandeses y hacerles cobrar unos impuestos que no pretendían ni pretenden cobrar a empresas que se ubicaron en dicho país, gracias a los beneficios fiscales que se les ofrecieron. Este caso en particular retrata lo equivocada y mezquina que es la política de la OCDE.
Muchos otros países de la OCDE ahora quieren buscar incentivos fiscales como es el caso de Italia, que pretende incorporar disposiciones para competir con los ‘NON DOMS' del Reino Unido... En resumen, que sea bueno para ellos pero no para nosotros. (‘Non Doms' se refiere a la posibilidad de no pagar impuestos en el RU, si no eres residente —‘Non Domicile', si ese dinero lo ganas fuera del RU).
La salida del Reino Unido de la Unión Europea o brexit , representa un posible cambio en todos estos conceptos a nivel mundial y hay que estar muy atentos. Es muy probable que RU va a promover incentivos fiscales y quién sabe qué otras ventajas para el resto del mundo. De hecho, la competencia a nivel de ventajas tributarias muchas veces pone en evidencia sistemas fiscales deficientes y abusivos. Este es precisamente el meollo de este tema. Las empresas que a su vez son fuentes de empleo y riqueza y los ciudadanos emprendedores y productivos del mundo entero se benefician cuando los países compiten por mejores incentivos fiscales.
Que exista esta competencia entre diversas jurisdicciones le pone los pelos de punta a la OCDE y que la mayoría de los países que la forman pretendan convertir el mundo en un gran ‘infierno fiscal' es su prerrogativa. Pero que nuestras autoridades hayan comprado ese discurso y pretendan vendérnoslo como la panacea, me parece fuera de orden y un irrespeto a nuestra histórica posición en el mercado financiero mundial.
¿Sabían ustedes que en muchos de estos países de la OCDE hay gente que prefiere vivir de los subsidios públicos, porque, cuando trabajan el total de su salario, menos los impuestos que se les descuentan, resulta por debajo de los cheques correspondientes a subsidios? ¿Es ese el ejemplo que queremos copiar para nuestro país? ¿Es ese tipo de Gobierno con el que deseamos quedar bien?
Pues, lamentablemente, la respuesta es sí. Y esto, en mi muy humilde opinión, está mal. Muy mal. Y ¿por qué está mal? Porque en esta película ‘El malo' es la OCDE y Panamá es la víctima. La OCDE es quien viola las normas del derecho internacional público y ataca sin piedad para imponer su doctrina por la fuerza de la coerción. El argumento que usan los voceros del Gobierno de que ‘todo el mundo va en esa dirección' me recuerda, cuando siendo adolescentes le decíamos a nuestros padres que podíamos tomar alcohol porque ‘todos nuestros amigos lo hacían', a lo que ellos nos contestaban '¿y si tus amigos se tiran del puente de las Américas, tú también te vas a ir a tirar?'.
No terminamos de entender por qué nos quieren llevar al ‘infierno', en lugar de luchar por defender nuestro ‘paraíso'.
¿Queda alguna duda de quién es el malo y quién es el bueno en esta saga?
Source: firstname.lastname@example.org; La Estrella de Panamá; 27 de abril 2017
Following Financial Secretary Paul Chan's 2017/18 Budget presentation, this special feature gets under the surface of Hong Kong to find out how its favorable tax and regulatory regime, and its special relationship with China, continues to attract huge volumes of investment to the city.
What Is Hong Kong?
In fact, it is wrong to call Hong Kong a mere city. The city of Hong Kong, home to an estimated 7.1m people in 2015, makes up only a part of the territory of Hong Kong, which at 1,100 square kilometers is about six times the size of Washington D.C. This territory comprises Hong Kong Island and the adjacent islets, Stonecutters Island, the Kowloon Peninsula on the mainland and the New Territories. The New Territories comprise approximately 90 percent of the land surface area of Hong Kong and consist of a portion of the Chinese mainland.
Nevertheless, it is also true that Hong Kong was, until quite recently, was a colony. Occupied by the British in 1840, Hong Kong was formally ceded to the British Empire the following year. It remained a largely self-governing British possession until 1997 when the territory's sovereignty was formally handed over to the People's Republic of China.
Thus, Hong Kong is now a Special Administrative Region (SAR) of the People's Republic, rather than an independent country in its own right, although the constitution governing China's relationship with Hong Kong does grant the territory a great deal of autonomy over its internal affairs.
One Country, Two Systems
A legal framework based on English common law, and a laissez-faire economic system – ingredients which are the very foundation of Hong Kong's success as a regional trading entrepôt and global financial center – would seem the very antithesis of the one-party communist system established in China. However, Beijing has realized that it has much to gain from maintaining the status quo in Hong Kong, and as is touched upon later in this feature, the territory is playing a major role in the internationalization of the Chinese economy.
Hence, the guiding principle of the constitution setting out China's legal relationship with Hong Kong, known as the Basic Law, is "one country, two systems," under which China agreed prior to the handover that Hong Kong's capitalist system would remain unchanged until the year 2047. Thus whilst defense and foreign affairs are the exclusive domain of China, Hong Kong is autonomous in all other matters. The handover agreement also provided for the territory to maintain its British legal system save in so far as those laws contravene the Basic Law and with the Court of Final Appeal of Hong Kong replacing the Privy Council as the final and highest court of record.
Although there have been one or two cases in which Beijing has seemed to over-rule Hong Kong courts, particularly as regards citizenship issues, by and large, the transition from colony to Special Administrative Region has been successful. However, the people of Hong Kong have been very dissatisfied with the lack of independence and vigor shown by their leaders in moving towards democracy in the SAR, as demonstrated by the Occupy Central protests in the latter half of 2014. It remains to be seen whether proposed electoral reform will really satisfy the Hong Kong population's demand for universal suffrage, something so at odds with the Chinese system.
Hong Kong's Financial Center
Low-value manufacturing used to be the mainstay of Hong Kong's economy, but this industry has now largely decamped to neighboring Chinese provinces, with the territory's economy now based largely on re-exporting and services, particularly financial services.
Banking is a major constituent of Hong Kong's substantial financial services industry. Tokyo aside, Hong Kong is Asia's largest banking hub in terms of external transaction volume.
Hong Kong is also recognized as the leading fund management center in Asia with the industry defined by its international and offshore characteristics, and it has become a popular choice for hedge fund managers, especially since the government granted an income tax exemption to offshore funds owned by non-resident entities administering a fund in Hong Kong. According to the Hong Kong Securities and Futures Commission, the combined fund management business in Hong Kong reached a record high at the end of 2014 of almost HKD17.7 trillion (USD2.3 trillion), up 10.5 percent. Assets managed in Hong Kong increased by nearly 18 percent to a record level of HKD6.85 trillion.
Hong Kong has also established itself as the favored base for multinational companies looking to expand into Asia-Pacific markets. In 2016, 874 non-Hong Kong companies established a new place of business in Hong Kong under the Companies Ordinance, taking the total number of registered non-Hong Kong companies to 9,983 by the end of 2016.
The importance of Hong Kong on the world economic stage is reflected in the huge volumes of foreign direct investment (FDI) inflows and outflows reported every year. Indeed, Hong Kong ranked second in global FDI inflows, according to the United Nations Conference on Trade and Development's World Investment Report covering 2015, receiving FDI inflows of USD175bn in 2015, a year-on-year surge of 53.5 percent compared to USD114bn in 2014. It places Hong Kong second only to the US (USD380bn) and ahead of Mainland China (USD136bn).
Recent local incorporation statistics also attest to the fact that Hong Kong remains a hotbed of entrepreneurial activity. According to statistics released by the Hong Kong Companies Registry in January 2017, the total number of local companies registered under the Companies Ordinance reached 1,341,223 at the end of 2016, up 52,557 from the corresponding figure at the end of 2015.
Hong Kong's stock market is a crucial component of the jurisdiction's financial center, and its status as the gateway for inward investment to, and outward investment from, China has secured its position as the stock market for Chinese firms seeking to list abroad. In 2016, mainland Chinese companies constituted 51 percent of the firms listed on the Hong Kong Stock Exchange and accounted for 63 percent of the Exchange's market capitalization.
The Hong Kong Stock Exchange also set new trading records in 2016. In the securities market, according to HKEX and Bloomberg data, USD24.8bn was raised through IPOs in 2016, making Hong Kong the number one fundraising center in the world for the second straight year. By December 15, 2016, total futures trading had reached almost 81m contracts, up 10 percent on the record high of 73.5m contracts in the whole of 2015. The trading of various options contracts through HKEX also set new records in 2016, and the turnover of securitized derivatives has now been the world's highest for 10 consecutive years (according to data from the World Federation of Exchanges).
There were 121 new listings between January 1 and December 15, 2016, and the total equity funds raised in this period was HKD462.4bn (USD59.7bn). As of December 15, 2016, there were 1,968 companies listed by HKEX on the Main Board and Growth Enterprise Market, with a total market capitalization of HKD24.7 trillion.
Crucially, The Hong Kong Government believes that there are tremendous opportunities ahead for Hong Kong's financial center as China continues to liberalize its currency, the renminbi (RMB). The "offshore" RMB market was effectively born in Hong Kong in 2003 and at the end of October 2015, RMB customer deposits and certificates of deposit issued by banks in Hong Kong together amounted to around RMB1 trillion (USD145.5bn). In 2015, over USD6 trillion, or more than 90 percent, of mainland China's total RMB trade is settled by Hong Kong banks.
Of course, many of these economic feats probably wouldn't have been achieved if it wasn't for Hong Kong's fiscal advantages.
Unlike most onshore jurisdictions, income tax in Hong Kong is levied on a "territorial" basis, which means that income tax is due on locally-sourced income only. What's more, a number of taxes that are levied in other jurisdictions do not exist in Hong Kong; for example, there are no capital gains taxes, no withholding taxes, no sales taxes, no VAT, no annual net worth taxes and no accumulated earnings taxes on companies which retain earnings rather than distribute them.
While corporate income tax (known as Profits Tax), at 16.5 percent, is higher than in the classic "offshore" jurisdictions, it is still substantially lower than in most OECD countries, even accounting for the fact that corporate tax rates around the world have fallen in recent years.
Hong Kong also offers tax concessions to certain types of business. Special concessionary rates of profits tax which are substantially less than the standard rates apply to the following businesses or sources of income:
• Trading profits and interest income derived from debt instruments issued in Hong Kong with an original maturity of up to seven years will be chargeable to tax at a concessionary rate, being 50 percent of the normal profits tax rate, while those with a maturity period of seven years and above qualify for a 100 percent concession.
• The reinsurance of offshore risks is taxed at a concessionary rate, being 50 percent of the normal profits tax rate.
• Life insurance businesses are assessed at 5 percent of the value of the premiums arising in Hong Kong.
• An entity whose business is to grant rights to use a trademark, copyright, patent or know-how pays a flat profit tax of 30 percent of 16.5 percent (4.95 percent, or 4.5 percent for an unincorporated business) of the payment received with all related expenses being non-tax deductible. If the recipient of the payment is a related offshore licensing company, the Hong Kong company must withhold and hand over 4.95 percent of the fee paid over.
• Income from the international operations of shipping companies is exempt from tax unless the ships are operating in Hong Kong waters or proximate to the same in which case only that proportion of income earned in Hong Kong is subject to local tax of 16.5 percent. Shipping profits meeting the conditions of the double taxation agreement with the USA are exempt from profits tax in Hong Kong.
• Irrespective of whether or not the company is managed and controlled from Hong Kong assessable profits are the proportion of income arising within Hong Kong (from the uplift of passengers and freight locally) to the proportion of worldwide income. Under a number of international aircraft double taxation agreements, the government has agreed to include income arising abroad for taxation in Hong Kong where that income is exempted abroad under the agreement. Likewise, profits meeting the conditions of the double taxation agreements are exempt from profits tax locally. The rate is 16.5 percent of assessable profits.
• The sale of goods on consignment from Hong Kong on behalf of a non-resident is subject to a tax of 1 percent of the turnover without any deductions unless the non-resident can produce accounts to show that he would have paid less profit tax than consignment tax in which case a normal rate of tax will apply. The selling of goods on consignment is deemed to be the equivalent of creating a permanent establishment.
• An entity whose business is to rent out a film, tape or sound recording for use in any cinema or television program pays a profit tax of 30 percent of 16.5 percent (4.95 percent, or 4.5 percent for an unincorporated business) of the payment received with all related expenses being non-tax deductible.
In comparison to other jurisdictions, however, Hong Kong does not offer much in the way of tax incentive schemes. The attitude of the Government has been that Hong Kong's low, simple, territorial tax regime is incentive enough to establish business operations in Hong Kong, and this is something that foreign investors seem to like. However, this isn't to say that the Government ignores the needs of key business sectors, and it proposes targeted concessions for certain types of companies on a fairly regular basis.
In a recent example, the Government gazetted a legislative bill on December 4, 2015, which aims to enhance the existing interest deduction rules for the intra-group financing business of corporations and introduce a concessionary profits tax rate for qualifying corporate treasury centers. This measure was approved by the Legislative Council (LegCo) on May 26, 2016.
And in July 2015, Hong Kong's Government brought into effect the promised extension of the profits tax exemption for offshore funds to private equity funds.
Chief Executive Leung Chun-ying announced in his 2017 Policy Address on January 18, 2017, that the Government will take further measures to create a favorable tax environment and consolidate Hong Kong's status as a premier asset management hub in the Asia-Pacific region. For example, the Government plans to introduce a tax amendment bill into the LegCo in 2017 to offer a tax to companies in the aircraft leasing sector.
More generally, Leung said that Hong Kong must consider how to enhance its overall competitiveness, including offering tax and financial concessions, and other policy support measures to attract innovation and technology enterprises from Hong Kong, the Mainland and overseas. Therefore, further targeted tax concessions are likely to be announced by the Government in the coming months and years.
Personal taxation is also low by international comparison. Income tax, known in Hong Kong as Salaries Tax, is paid at either a flat rate of 15 percent or on a progressive scale between 2 percent and 17 percent. Taxpayers may elect to choose to pay tax under either of these systems, depending on which one gives them the lower tax liability. Individuals are only assessed on annual employment income which is defined as wages, salaries, bonuses, commissions, payments by the employer into a pension fund for the employee and gratuities. Non-employment source income such as share dividends and capital gains realized on the sale of shares are not taxable in the territory. In addition, the definition of income does not include either a pension from a source outside Hong Kong or compensation for loss of employment.
The 2017 Budget
There was a focus on both the short-term and the long-term in the 2017/18 Budget, announced on February 22, 2017, by Financial Secretary Paul Chang.
Chan outlined HKD35.1bn in short-term relief measures and tax breaks including:
• Reducing salaries tax and tax under personal assessment for 2016-17 by 75 percent, subject to a ceiling of HKD20,000. This proposal will benefit 1.84 million taxpayers and reduce government revenue by HKD16.4 billion;
• Reducing profits tax for 2016-17 by 75 percent, subject to a ceiling of HKD20,000. This proposal will benefit 132,000 taxpayers and reduce government revenue by HKD1.9bn;
• Waiving rates for four quarters of 2017-18, subject to a ceiling of HKD1,000 per quarter for each rateable property. This proposal will benefit 3.21m properties and reduce government revenue by HKD10.9bn; and
• Providing extra allowances to social security recipients and other allowance and subsidy recipients. This will involve an additional expenditure of about HKD3.5bn.
In addition to the above one-off measures, the Financial Secretary also proposes, after taking into account the Government's fiscal position in the short to medium term, the following five recurrent tax measures starting from 2017-18 so as to relieve the burden on taxpayers:
• Widening the marginal bands for salaries tax to HKD45,000. This measure will reduce the tax burden of 1.3m taxpayers and reduce tax revenue by HKD1.5bn a year;
• Raising the disabled dependent allowance to HKD75,000. This measure will benefit 35,000 taxpayers and reduce tax revenue by HKD50m a year;
• Raising the dependent brother/sister allowance to HKD37,500. This measure will benefit 23 800 taxpayers and reduce tax revenue by HKD13m a year;
• Extending the entitlement period for the tax reduction for home loan interest to 20 years of assessment. This proposal will reduce tax revenue by HKD430m a year; and
• Raising the deduction ceiling for self-education expenses to HKD100,000. This measure will benefit 3,500 taxpayers and reduce tax revenue by HKD8m a year.
The 2017/18 Budget also continues the Government's new policy of investing greater amounts of money into social services and the public sector. As Chan stated in his maiden Budget speech: "My endeavor is to make use of the wealth we have accumulated together through hard work to take care of the needy in society, ease the heavy burden of middle-class families, and make appropriate investments essential for building a better Hong Kong."
Given the higher than expected fiscal surplus, Chan earmarked HKD61bn for investment in elderly services and rehabilitation services for persons with disabilities; sports and recreation facilities; innovation and technology development support; and vocational and educational training.
Chan said total government revenue in 2017-18 is estimated at HKD507.7bn. The overall expenditure of the Government for 2017-18 is estimated to be HKD491.4bn, representing an increase of 5.3 percent compared with the revised estimate for 2016-17.
The budget surplus is expected to be HKD92.8bn in 2016/17 and fiscal reserves are forecast to reach HKD935.7bn by March 31, 2017.
Until recently, Hong Kong tended not to sign comprehensive agreements with other jurisdictions for the prevention of double taxation, preferring instead to sign more limited agreements covering income from aviation and shipping activities. This, however, is changing.
The Government is now expanding its network of comprehensive double tax agreements (CDTAs) with a view to protecting and facilitating business co-operation between Hong Kong and the so-called "Belt and Road" countries, a Chinese Government economic development project, which is primarily aimed at integrating trade and investment among around 60 Eurasian countries. Hong Kong signed its 37th CDTA, with Belarus, on February 17, 2017.
The international community's increasing demand for global tax transparency is another reason why Hong Kong is entering into more CDTAs with the most up-to-date standards for information exchange included. In fact, Hong Kong has committed to automatically exchange tax information on a reciprocal basis with other countries with which it has an agreement on such, with the first exchanges to take place by the end of 2018.
Hong Kong and BEPS
In October 2016, Secretary of Financial Services and the Treasury K C Chan said that Hong Kong is "supportive" of international efforts to promote tax transparency and combat tax evasion under the OECD's base erosion and profit shifting (BEPS) project. Thus, Hong Kong's intention to implement measures to counter BEPS "signifies our commitment to international tax co-operation," he added. However, Hong Kong's competitiveness remains at the forefront of the Government's mind.
"Hong Kong will need to revise our existing tax laws to meet the [minimum] requirements of the BEPS package. In formulating our implementation strategy, we need to ensure that our model meets the international standard without compromising our simple and low tax regime," said Chan.
A consultation paper released in October 2016 confirmed that the Government would "draw up a pragmatic strategy to implement the international requirements."
"The implementation timetable for BEPS is very tight," Chan continued. "To meet the OECD's requirement, our current target is to introduce the relevant amendment bill or bills into the Legislative Council in mid-2017." The consultation period will end on December 31, 2016.
The priority is to put in place the necessary legislative framework to update transfer pricing rules; exchange information on tax rulings, and introduce CbC reporting requirements (which are expected to capture about 150 Hong Kong enterprises under the OECD's minimum EUR750m consolidated group revenue threshold); bolster cross-border dispute resolution mechanisms; and enter into the multilateral instrument to modify bilateral tax treaties.
The Closer Economic Partnership And Free Trade
Foreign companies are also flocking to Hong Kong to take advantage of the Closer Economic Partnership Arrangement (CEPA) between the SAR and the People's Republic, which has substantially liberalized trade in goods and services between the two locations. According to InvestHK almost one-third (31 percent) of the 303 companies it assisted in 2010 indicated that the CEPA was one of the considerations in their decision to locate in Hong Kong.
The first CEPA agreement was signed in June 2003 for implementation in 2004, and the Central and Hong Kong governments have since signed nine supplements to the agreement. The most of recent of these is Supplement X to the CEPA, which was signed on August 29, 2013. It provides for a total of 73 services liberalization and trade and investment facilitation measures, strengthens co-operation in areas of finance, trade and investment facilitation, and further promotes the mutual recognition of professional qualifications in the two places. It brings to 403 the total number of liberalization measures for trade in services under CEPA, since its signing in 2003.
The Agreement on Trade in Services signed under the framework of CEPA was implemented in June 2016 and the Hong Kong Government is exploring the expansion and enhancement of CEPA in the areas of investment, economic and technical cooperation.
Hong Kong is in fact already one of the world's freest economies (the freest, according to the Heritage Foundation). No tariffs are imposed on imported goods, and excise duties are levied on only four commodities, including spirits, tobacco, fuel oil, and methyl alcohol. However, Hong Kong continues to pursue free trade agreements (FTAs), investment promotion and protection agreements, double taxation agreements, and air services agreements with its major trading partners.
In particular, Hong Kong is negotiating an FTA with the Association of Southeast Asian Nations (ASEAN). While key issues in those negotiations include the reduction of tariffs and the liberalization of trade in services, the Government is also seeking to protect investments made by Hong Kong businesses in ASEAN member countries. Hong Kong has also signed 19 investment agreements.
After the conclusion of the FTA negotiations with ASEAN, Hong Kong is expected to seek to join the talks on the Regional Comprehensive Economic Partnership (RCEP), currently being negotiated between ASEAN and its six FTA partners: China, Japan, South Korea, Australia, New Zealand, and India.
While there are certainly challenges ahead for Hong Kong, especially in relation to tax transparency, BEPS, and more aggressive competition from regional and global financial and business hubs, its Government is looking to the future with confidence. And this positive outlook is largely linked to Hong Kong's unique position as China's connector to the global economy. As Leung summarized in his 2017 Policy Address:
"Hong Kong has been contributing to [China's] internationalization and connection with the world. Hong Kong serves not only as the offshore RMB center of our country but also the special administrative region for early and pilot implementation of liberalization of trade in services through CEPA. As the most open international city of the country, Hong Kong plays the role of a 'super-connector,' helping our country go global and attract foreign investment."
Source: Tax-News.com Editorial
March 8, 2017