Greetings From Hong Kong!!

Welcome to another edition of the ICS TRUST Monthly Newsletter – the information source for key international tax and trade news.

During this past month, the ICS TRUST team has been heavily hitting the road, attending a number of international conferences and actively building new business relationships through a series of trips.

Most recently, ICS TRUST sponsored the International Tax Practitioners Association (ITPA) meeting, held in Hong Kong. Company President and Founder Ms. Elizabeth Thomson addressed the attendees with a fast-paced presentation entitled “Doing Business in Hong Kong and China: Realities and Practicalities”, which was well received. For an overview of the presentation and event please click on the link below, which will transfer you to the ITPA website. Click Here

Earlier in the month, our Director Mr. Sakhrani and Vice President Mr. Booth were in Beijing again, where they met with senior government officials, law firms, and a number of our locally based clients. The trip was highly successful at fostering key business relationships and developing new business opportunities, further increasing our ability to assist multinationals with their FDI requirements and securing our footing as a leader in facilitating the recent abundance of outward-bound investments.

Mr. Sakhrani, also visited Toronto this month, where he was a guest speaker at a conference hosted by Canadian Law Firm Fogler Rubinoff, entitled “How to Grow Your Canadian Business Through Global Opportunity”. There was a sizable turnout for this event, which led to some lively discussions and new business relationships.

Our company Vice President Mr. Wu and Company Secretary Ms. Wu were recently deployed to Vietnam to attend the Asian Offshore Association (AOA) conference this month. Aside from the conference, this trip was geared towards exploring this new market and assessing recent levels of growth within the business environment.

China's Tax Reforms

During the course of this past year, there have been a sizable amount of discussions regarding China’s newly determined stance on unifying it’s corporate taxation rates and many investors and tax conscious decision makers have been left flabbergasted with the endless amount revisions and lack of clarity.

The new amendments, which will take effect as of 1 January 2008, most notably the removal of concessionary tax rates to subsidiaries of foreign firms. In addition, there are a number of anticipated changes, which will take effect as of that date. Of course, as further details and guidance are released by Chinese tax authorities in the coming months, it is certain to present new opportunities and challenges for foreign companies already in, or contemplating entering, China. At the present time, many of the implementation notes pertaining to these amendments have not been issued. However, we'd like to highlight certain issues, which you may wish to address. Timing is sensitive, as any implementation should be completed before the end of calendar year 2007.

Dividends from a Chinese company to the parent are technically subject to a percentage-based withholding tax, depending on the jurisdiction and applicable tax treaty. However, to date, the Chinese authorities have not collected these taxes. It is anticipated that the authorities may begin to implement this withholding tax in 2008. You might wish to discuss the opportunity of paying out dividends generated from pre-2007 earnings before the end of this calendar year, in order to take advantage of the current exemption from withholding tax.

Dividends from a Chinese company to a Hong Kong parent are only subject to a 5% withholding tax. It may be advantageous to consider transferring the ownership of the Chinese subsidiary to a new holding company incorporated in Hong Kong or one of the other countries with favourable tax treaties with China. These would include Barbados. Of course, the tax regime in the recipient country also has to be considered. Dividends received by a Hong Kong company are not taxable in Hong Kong and there are no withholding taxes on outbound dividends.

At present, reorganization involving the transfer of PRC entity holdings within a commonly owned corporate organization are not subject to capital gains tax, given that the transfer is performed with a sensible business purpose in mind. As of January 2008, it is probable that this capital gains tax deferral will no longer be available to commonly owned foreign corporate organizations. Consequently, reorganizations of PRC holdings into offshore holding companies will need immediate consideration if the transfer is to be implemented before years end.

For more information on these new regulations and how they may affect companies conducting business within the region, please contact us at ics@icstrust.com

The ICS Trust Team

Visit our website www.icstrust.com

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TRADE

Hong Kong

HK Continues As Asia's Top Jurisdiction for Regional Headquarters

Overseas companies in the media, legal services and garment sectors have set up bases in Hong Kong, citing the SAR as the perfect springboard to conduct strategic expansion in the Chinese mainland and the Asia-Pacific region, reports a survey by Invest Hong Kong. Also retaining its position as Asia’s second largest recipient of foreign direct investment, Companies now use Hong Kong as a services platform for tapping into the fast-growing China market. Read more...

Hong Kong Entices Canadian Business

Hong Kong's Secretary for Commerce and Economic Development, has stated that Hong Kong provides a level playing field for all businesses, local and foreign, offering a highly competitive business environment, as well as convenient access to north Asia, providing a plethora of opportunities for Canadian Business people. Read more..

'HK - Favoured Location For Canadian SME's '

Canadian SME’s are carving a niche in the fast growing mainland market after the Manulife and Sunlife success stories. The President of the Canadian Chamber of Commerce in Hong Kong said that Hong Kong could be the ideal gateway for small and medium sized enterprises given its proximity to the Chinese mainland and Hong Kong’s "can do" spirit. Read more...

Automakers make a play for China, as the race for clean car technology accelerates.

With its huge market and high velocity growth, China is quickly growing into a full-blown racetrack for automakers like Toyota, Honda and General Motors. Beijing is now promoting clean cars, both hybrids and others, with tax breaks and other policy incentives towards ongoing efforts to find affordable ways to make cars environmentally sustainable in polluted, fuel-scarce China. Read more...

New Processing Trade Policy affects PRD and YRD Differently

Hong Kong has developed strong manufacturing and foreign trade ties with the mainland, especially within the Pearl River Delta region and the Yangtze River Delta region. Prior to the new rule, most of the law-abiding processing trade enterprises did not have to make "actual payment" of customs duty deposit, i.e. only "nominal payment" of customs duty deposit was made and now trade activities involving products under the restricted category are subject to "actual payment" of customs duty deposit. Compared with their counterparts in PRD, YRD enterprises are in a better position to adapt to these policy changes. Read more...

China Secures Top Position As India's Trading Partner

China’s trade with India is nearly three times India’s trade with Japan. An economically resurgent India today, offers a variety of investment opportunities, both in traditional and new sectors, in labour-intensive and knowledge-based industries. Overtaking the US as India’s first global trade partner, China’s exports comprise manufactured and value added products. Read more...

Italy - Major WIPO Contributor

Italy has been the major contributor according to The World Intellectual Property Organization (WIPO) announcement last week in a recently concluded agreement. Contributions amounting to EUR600,000 formalized Italy’s long-standing support of WIPO’s activities relating to economic development, and made Italy one of the largest contributors of extra budgetary resources to WIPO. Read more...

New Global Trade Deal Imminent In The Next Few Weeks

A world trade deal and reform of global financial institutions could help ease the impact of an expected economic downturn next year. British Prime Minister Gordon Brown has expressed concern about the sensitivities of rural farmers in India and everywhere else and has hinted at a cut in agricultural subsidies in the European and American markets. The need for progress in opening up manufacturing was also stressed upon, signalling a consensus between India and Britain, two key countries in the talks. Read more.

France Signs 20-billion Euro Trade Deals With China

French President Nicolas Sarkozy has signed trade deals with China worth about 20 billion euros. The two major agreements announced on the second day of Sarkozy's visit to China were contracts for European aerospace giant Airbus to deliver 160 aircraft and French firm Areva to build two nuclear reactors. The announcement came at the start of formal talks between President Sarkozy and his Chinese counterpart Hu Jintao, which covered a range of international issues including Taiwan, the crisis over Iran's nuclear programme and North Korea's nuclear programme. Read more.....

TAX

Hong Kong

Hong Kong Announces Tax Cuts

One of the most common questions about the worlds ‘freest economy’ is whether it truly has no tax. Although this is untrue, Hong Kong tax is extremely low and now Hong Kong Special Administrative Region Chief Executive Donald Tsang has announced that the standard rate of salaries tax will be reduced to 15 percent in 2008-09. Read more...

Tax Pact Signed By Hong Kong And Luxembourg

The Secretary of Financial Services and the Treasury Professor KC Chan and Luxembourg Economy and Foreign Trade Minister Jeannot Krecke signed an agreement on November 2, to do away with double taxation making it the fourth such agreement with a view to bring about tax savings and certainty in tax liabilities in connection with cross border economic activities. Read more...

China

Small Business Tax Concession To Be Introduced By China In 2008

China’s new corporate income tax law, which goes into effect as of January 1, 2008, will unify foreign and domestic rates at 25%. However, in an effort to promote competition and forestall monopoly a tax concession will be granted to small businesses making low profits. Small businesses that meet the definition of low profit makers will be eligible for the reduced rate of 20%. Read more...

Property Tax To Be Enforced Next Year

In an effort to cool rising property markets within the mainland, China is expected to implement a virtual property tax in 10 regions of the country on a trial bases next year. The virtual tax will be used as a research tool to establish if such a tax is necessary in subsequent years. The tax is said to reduce the number of idle properties in these major cities and will become a stable income resource for the government. Read more...

North America / Europe

Income Earned Online Is Also Taxable - Warns The CRA

In an ongoing effort to ensure all Canadians pay their taxes and no one is above the law, the Canadaian Revenue Agency affirmed that all income earned online is subject to tax. Online businesses must comply with the tax rules that apply to any business operating in Canada. Read more...

Corporate Tax Cut Announcement Accoladed by Canadian Accountants

The Canadian Government has commited to reduce the general corporate tax to a rate of 15% by 2012, as a stepping stone toward making Canadian companies more competitive. The government has also decided to reduce overall taxes and to allot an additional $10 billion for debt reduction this year, .Canadian accountants have welcomed this move which would further simplify the tax structure and enhance the prosperity of all Canadian businesses. Read more...

Taxation Of Financial Institutions Set To Be Revamped By Canada

The Federal Finance department is seeking comment on draft amendments released today that aim to improve the taxation of financial institutions by better aligning tax laws with new standards set out by the Accounting Standards Board. The proposed amendments relate to the calculation of: the income of financial institutions from certain share holdings and debt obligations; policy reserves that are deductible by insurance corporations in computing income for tax purposes; and, the minimum tax for life insurance corporations resident in Canada. Read more...

Jim Flaherty Announces Tax Cuts

Canadian Minister of Finance, Jim Flaherty, has introduced into the House of Commons a package of business and personal tax cuts that the government claims will reduce the overall level of taxation in Canada to its lowest level in decades. Read more...

Switzerland Stands Its Ground In Tax Fight With EU

The ongoing battle between the Swiss and EU had another ineffectual outcome as Switzerland stands firm over its corporate tax system, while the European Union has an undue advantage over its competition, Brussels does not have the legal capablities that would force the Swiss to comply. The core of the latest discussion was Switzerland's cantonal tax system, which The European Commission considers to be incompatible with the 1972 Free Trade Agreement - a notion that the Swiss government firmly rejects. Read more...

Offshore

OECD Makes Headway In Fighting Offshore Tax Evasion

An increasing number of efforts are being driven into developing cohesiveness and transperency among international financial centres, both onshore and offshore, to counter offshore tax evasion according to OECD (Organisation for Economic Co-operation and Development) assessments. Countries such as Austria, Luxembourg and Switzerland and a number of offshore financial centres (e.g Cyprus, Liechtenstein and Panama) still maintain significant restrictions on bank information for tax purposes, which OECD continues to scrutinize. Read more...

New Offshore Funds Regime Queried By UK Treasury

The UK Government is proposing that taxation of offshore funds should distinguish between income and capital gains, on the condition that a fund should report its results in a prescribed format to UK investors and the tax authority. This allows offshore funds to have a free hand while investing in non-distributing funds and make provisions for both funds and sub-funds to provide information about the separation of income and capital. Read more...