Fri, Mar 6, 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. SkyBridge opens office in Palm Beach County[more]

    Where better for a southern location than South Florida? SkyBridge Capital, which is headquartered in New York, has opened an office in Palm Beach Gardens. Palm Beach Gardens is a "Signature City" in northern Palm Beach County, with a population of around 49,000.

  2. Outlook - Philippe Jordan predicts 'alternative beta' to displace hedge funds, Stan Druckenmiller says Europe, Japan stocks will outpace U.S.[more]

    Philippe Jordan predicts 'alternative beta' to displace hedge funds From Investordaily.com.au: The disappointing performance of hedge funds in recent years is a result of "too much money chasing too little alpha", argues Capital Fund Management. Speaking to InvestorDaily, CFM partner Phi

  3. Investing - As rig count falls, hedge funds pile into long crude futures, Parus tactically shifts long/short exposure ratios, Mario Draghi outflanking Kuroda as bearish euro bets surge, Prime Capital’s 500.com bet derailed after 41% drop[more]

    As rig count falls, hedge funds pile into long crude futures From 247wallst.com: In the week ended February 27, the total number of rigs drilling for oil in the United States came in at 986, compared with 1,019 in the prior week and 1,430 a year ago. Including 281 other rigs mostly drill

  4. Outlook - 5 reasons why 2015 is looking like a breakout year for alternative investments, Hedge fund manager Dan Loeb predicts disappointment for funds seeking energy distress[more]

    5 reasons why 2015 is looking like a breakout year for alternative investments From Forbes.com: …After a strong 2014, the public markets have been off to a choppy start in 2015. This year, savvy investors may be looking for alpha elsewhere. For many institutions and high-net-worth indivi

  5. Event-driven strategies lead hedge fund gains in February while CTA rally shows signs of fatigue[more]

    Komfie Manalo, Opalesque Asia: Hedge funds ended February on a good note (+0.8%), confirming the positive momentum witnessed since the start of the year, reported Lyxor Asset Management in its Weekly Briefing. As of the end of February, the Lyxor He