Thu, Jul 30, 2015
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Taxes drive rising cost of business in China

Friday, September 03, 2010
Opalesque Industry Update – The Chinese government’s renewed efforts to collect taxes has fund managers saying this could lead to rising cost in doing business in the region, particularly for global fund managers running international portfolios for mainland institutions.

Many fund executives from Singapore and Hong Kong said Beijing has required them to pay business and income taxes if their firms are classified as a “permanent establishment,” reported Asian Investor. The managers said it is the first time Chinese tax authorities have asked them to pay said taxes.

Until 2009, fund managers can avoid paying 5% tax on gross fees if they declare that their investments were done offshore. But a new tax measure introduced in early 2009 removed any onshore-versus-offshore categories, and charges all businesses done by foreign financial companies.

“It’s only 5% of the gross fee, so it’s not really a big deal,” says one institutional sales head at a big US asset manager. But tax authorities in Beijing are not just enforcing a long-standing business tax on financial services transactions, the above-mentioned 5% is on gross. And should Chinese tax authorities deem these fund management offices as permanent establishments, they can be charged with income tax ranging between 15 to 50% on profits; tax on services currently stands at 25%

But the taxes don’t stop there, LS Goh, a China tax expert at PricewaterhouseCoopers in Hong Kong, warned of more taxes on individuals. Chinese law says that employees of permanent establishments should pay mainland income tax even if they work for only one day. That rate can be as high as 45%, and if the individual does not pay, the employer is held responsible, it was reported by Asian Investor.

Tax a contentious issue among fund managers, hedge funds
The issue of taxation has always been a contentious one among hedge funds. In the U.S., two prominent hedge fund managers Stephen Schwarzman, the co-founder of Blackstone, and Daniel Loeb, founder of the hedge fund Third Point, heavily criticized the Obama administration for introducing a new round of taxes to hedge funds. Schwarzman compared the move to Adolf Hitler’s 1939 invasion of Poland, while Loeb condemned President Obama for “operating from a playbook quite different from the one we are used to as American business people.”

Last month, lobbyists and lawyers working for hedge funds warned that a Congressional Democrat-drafted bill that aimed to tax the profits of private equity and hedge fund managers as ordinary income, could derail some of the largest U.S. public companies that operate joint ventures.

But the largest association of hedge funds, the Alternative Investment Management Association (AIMA) predicted that even with the introduction of tax legislations, hedge funds would not leave the U.S.. Todd Groome, chairman of the London-based AIMA said in June that these new tax measures can be managed and he does not expect hedge funds to “change their lives over that.”

Also last month, New York legislators backtracked on their proposal to tax hedge fund managers who work in New York but live out of state, after hedge fund managers threatened to transfer their operation elsewhere, particularly Connecticut.

Gov. David Paterson and Mayor Michael Bloomberg opposed the bill on concerns that affected hedge fund managers might be swayed by the persistent wooing of rival state Connecticut with an offer of a better tax regime.

UK too fears mass exodus of rich families because of higher tax
Ronnie Ludwig, one of UK’s leading tax expert and a partner at accounting firm Saffery Champness, warned early this year that at least 600,000 wealthy individuals are expected to leave the UK in 2010 to avoid paying higher taxes.

Ludwig said that majority of those who will leave the UK will be middle class professionals and wealthy business owners or, as he calls them, “wealth creators”. As expected, Geneva has positioned itself as a better alternative for the expected rich families who will leave London. Since as early as May of this year, Swiss government officials and Geneva-based financial advisers have been visiting London to lure rich residents to attract them to relocate by offering them lower taxes, safer streets, private-banking options and convenient ski weekends.

Martin Meyer, head of economic development for the Swiss canton Valais, which borders Lake Geneva said: "We are here to make it easier for you to come to Switzerland.
- Precy Dumlao
PD

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Bridgewater turns bearish on China[more]

    Komfie Manalo, Opalesque Asia: The world’s biggest hedge fund Bridgewater Associates and one of the most vocal of China’s potential is now turning its back against the world’s second largest economy as it joins a growing list of high-profile investors who are challenging China’s potentials.

  2. Opalesque Exclusive: Despite bumpy June/July, CTAs hold on[more]

    Bailey McCann, Opalesque New York: To say that things have been rocky in managed futures recently is putting it mildly. In June, the industry saw its worst month on a performance basis in the past four years. Then yesterday,

  3. Launches - Ex-Brevan Howard star Rokos builds team for new fund, Former Och-Ziff manager’s firm starts health care hedge fund, Industry veterans launch commodity investment firm Aron Capital Management, Nikko Asset Management launches two UCITS funds, Capital Group plans to debut Asian investor targeted fund[more]

    Ex-Brevan Howard star Rokos builds team for new fund From WSJ.com: Chris Rokos, a former star trader at Brevan Howard Asset Management LLP, has hired an economist from Nomura to join the team he’s assembling for his much anticipated hedge fund launch. Mr. Rokos, whose firm is due to b

  4. Institutions - Pension fund dismisses Texas consultant, Rhode Island pension fund gets 2.2% investment return, far below assumed rate of 7.5%, New Jersey pension investments see a drop-off in returns[more]

    Pension fund dismisses Texas consultant From Sandiegouniontribute.com: The county retirement board on Thursday terminated the Texas consultant who was given the reins of the $10 billion pension fund, and whose investment picks left many employees and retirees feeling taken for a ride.

  5. SWFs - Sovereign wealth funds paid around $14 billion in fees[more]

    From SWFinstitute.org: When it comes to the financial sector, asset management is one of the most profitable industries in the world. The Boston Consulting Group put out a 2014 figure saying there is US$ 74 trillion worth of professionally-managed assets. One of the fastest growing institutional inv

 

banner