HK may extend Property Stamp Duty Increase

When speaking at the Legislative Council, the Financial Secretary John C Tsang, has said that the government of Hong Kong will keep a close watch on the state of its property market and, if necessary, will extend property taxes to reduce property speculation.

In order to increase the cost of property transactions and curb possible speculation in the luxury flat market, in the budget in February 2010, Tsang increased the rate of stamp duty from April 1 on transactions of properties valued more than HK$ 20 million (USD 2.6 million) from 3.75% to 4.25%. Also, buyers are no longer allowed to defer payment of stamp duty on such transactions.

Tsang said that, as a result, the rise in overall apartment prices slowed from 2.5% in January to 1.1% in both February and March. However, he mentioned that the increasing risk of a property bubble must not be ignored, therefore the government would continue to monitor the property market and the overall economy, as well as to “introduce timely and appropriate measures to ensure a stable and healthy development of the property market”.

Tsang reminded that the Inland Revenue Department (IRD) will follow up all cases involving speculators profiting from property speculation. According to him, “The IRD maintains a huge database where details of all property transactions are recorded. To identify cases of possible property speculation, a computer selection is run periodically to analyze the sale and purchase transactions in the database.”

Filed under: Taxation

US Tax Officials’ Remit clarified in Hong Kong

Secretary for Financial Services and the Treasury, Professor KC Chan has recently clarified that US tax officials in Hong Kong have no enforcement powers there and they must abide by local laws.

According to Chan, the US Internal Revenue Service (IRS) attache at the US Consulate General in Hong Kong, as well as a local assistant, must abide by local laws. He said that “same as all consular officers in Hong Kong, they have no law enforcement powers in Hong Kong". US laws may not be enforced in Hong Kong.

The above-mentioned announcement followed the recent report by the Wall Street Journal that the US IRS is currently in the process of recruiting and training new enforcement personnel with an emphasis on auditing the tax affairs of the wealthy with significant overseas connections. This report said that lawyers and advisers in Hong Kong have been informed about the IRS’ plans to add several enforcement positions at the US Consulate in the territory.

Filed under: Taxation

HK and Shenzhen Exchanges sign market-data agreement

Aan agreement for a market data collaboration programme has been signed by the information business subsidiaries of Hong Kong Exchanges & Clearing and the Shenzhen Stock Exchange.

The agreement will help those investors who are interested in shares of issuers listed in both Hong Kong and Shenzhen. It will be beneficial for investors in both markets. Also, the market-data pact will help increase the visibility of issuers with securities trading in Hong Kong and Shenzhen.

Under the programme, both exchanges will be allowed to redistribute each other’s basic real-time market data for firms with securities listed in both markets to their own authorised information vendors for onward transmission to these vendors’ subscribers for internal display purposes.

It should be noted that the usual exchange fees for market data will be applied.

The programme is to come into effect on May 1. It will expire at the end of the year 2011 together with another similar collaboration programme with the Shanghai Stock Exchange.

Filed under: Business and Economy

HK DPS enhanced

After a review of Hong Kong’s Deposit Protection Scheme (DPS) was completed, an amendment bill has been published to implement enhancements identified in this review.

Taking into consideration developments in international and local financial markets since the outbreak of the world’s financial crisis in 2007 as well as experience derived from operating the DPS since 2006, the Hong Kong Deposit Protection Board completed a review of the Deposit Protection Scheme and conducted extensive public consultations on the findings of the review in 2009.

According to the review, the existing design features of the Scheme in the jurisdiction were already in substantial compliance with international best practices. However, the review identified areas for improvement to the DPS in order to address the latest market developments and to meet public expectations for better deposit protection.

The major enhancements include the following:
–    raising the DPS’s protection limit from HK$ 100 000 (USD 12 900) to HK$ 500 000;
–    improving the clarity of its coverage by protecting secured deposits;
–    introducing cost-mitigating measures to prevent the additional costs required from being transferred to depositors.

Secretary for Financial Services and the Treasury, Prof. KC Chan, noted that raising the protection limit to HK$ 500 000 will bring the percentage of depositors fully covered to about 90%.

The bill is expected to be tabled in the Legislative Council on April 21, 2010. To pass it, the government plans to implement the enhancements covered in the bill on January 1, 2011.

Filed under: HK Law changes

HK enters New Phase in Tax Transparency

According to Chu Yam-yuen, Commissioner of Inland Revenue, Hong Kong has entered a new phase in supporting the international effort to enhance tax transparency. He also said that the jurisdiction’s next hurdle is signing at least 12 comprehensive double taxation agreements (DTAs).

In accordance with the Inland Revenue (Amendment) Ordinance 2010, the legislation that is in force from March 2010, Hong Kong is allowed to sign comprehensive DTAs, incorporating the Organisation for Economic Cooperation and Development (OECD) international standard on exchange of information.

This legislation enables the Inland Revenue Department (IRD) to collect and transfer a person’s information upon a legitimate and justified request from its tax treaty partners.

It is suggested by Chu Yam-yuen that the passage of the legislation will help Hong Kong expand its network of comprehensive DTAs, as well as significantly enhance its position as a transparent tax offshore jurisdiction.

Hong Kong’s competitiveness against other Asian countries, such as Singapore, is to be strengthened. Also, Mainland-Chinese enterprises could benefit from DTAs if they establish a business in Hong Kong and use it for their outbound investment.

Filed under: Taxation

HK signs Economic Agreement with New Zealand

The Hong Kong-New Zealand Closer Economic Partnership agreement (CEPA) has been recently signed in Hong Kong by Hong Kong’s Secretary for Commerce and Economic Development, Rita Lau, and New Zealand’s Minister of Trade, Tim Groser.

It is worth noting that this CEPA is Hong Kong’s 1st free trade agreement (FTA) with another country, and the 2nd following that with the Mainland of China.
Under this trade agreement, liberalization measures on trade in goods and services will be introduced, and the two sides will work to strengthen bilateral trade and economic ties by means of facilitating investment and movement of businessmen.

Under the Hong Kong-New Zealand Closer Economic Partnership agreement, New Zealand will phase out over 6 years its import tariffs on all goods that originate from Hong Kong. Hong Kong’s service providers and the services they provide will, in their turn, enjoy secured preferential opportunities in New Zealand in various service sectors.

With a view to further enhance bilateral investment flows, the two jurisdictions have agreed to negotiate an investment protocol to the CEPA, in order to conclude the investment negotiations in 2 years’ time after the CEPA has entered into force.

At the signing ceremony, Rita Lau said that the CEPA is comprehensive, of high quality and that this agreement will take Hong Kong’s business and economic ties to a new height. She also noted that the agreement will be a new incentive to attract New Zealand enterprises to come and invest in Hong Kong.

The CEPA is to come into effect in late 2010 following completion of the requisite domestic implementation procedures in both Hong Kong and New Zealand.

Filed under: International Business Environment

HK to sign DTA with Japan

Hong Kong has held negotiations with Japan on a bilateral agreement for the avoiding double taxation (DTA). The treaty will be signed when necessary internal procedures will have been completed by the governments of the two jurisdictions.

The key provisions of the DTA with Japan are as follows:
–    it clarifies the scope of taxation on business profits of enterprises operating in each other’s places, to avoid instances of double taxation;
–    it reduces the withholding tax rates of dividends, interest and royalties paid to residents of Hong Kong and Japan.

So, the DTA is expected to promote further investment and economic exchange between Hong Kong and Japan.

It should be noted that the double tax agreement will also enable tax authorities of Hong Kong and Japan to carry out the effective exchange of information as regards tax matters in accordance with the international standard.

The DTA is to enter into force after ratification (approval by the Legislative Council in the case of Hong Kong and approval by the Diet in the case of Japan).

Filed under: International Business Environment