The press recently wrote about
Hong Kong's stamp duty increase in reaction to the yuan renminbi influx. The
Hong Kong Monetary Authority reported that yuan renminbi deposits increased 29 percent at the end of November, compared with October 2010, and that year on year, at the end of October yuan renminbi deposits in
Hong Kong increased 246 percent. If you want to see what this
means, come to
Hong Kong and look at prices! That's why
Hong Kong had to do something.
Effective November 20,
Hong Kong's new stamp duties covered all properties resold within 24 months of acquisition. This levy is enforced even if there is no sale but the property changes hands by way of a gift - if the transferee sells that property within 24 months or if it is an inheritance and the inheritor sells within 24 months. Even if the buyer made the wrong gamble and has to sell at a loss (unlikely unless there is a bubble burst), the stamp duty will still be in effect.
There are three levels of
Hong Kong stamp duty:
15 percent if the property is held for six months or less;
10 percent if the property is held between six and 12 months; and
5 percent for property held between one and two years.
I doubt that this will have any real effect on the
Hong Kong property market. The South
China Morning Post reported on January 29 that prices soared so much last year that
luxury flats are now 112 percent more expensive than their comparables in
London,
Moscow, and
New York. A lot of people cannot afford to live in
Hong Kong.
What the price spiral is doing, though, is creating another humongous
Hong Kong surplus - to the tune of HKD 75 billion when the
fiscal year-end of March 31 comes. Stamp
taxes are indeed profitable. What will happen because of this? I'd bet that Hong Kong's
corporate tax rate will go down from 16.5 percent to 15 percent. We won't know until the Hong Kong budget is presented on February 23.
The
Hong Kong Institute of Certified Public Accountants (HKICPA) issued its recommendations to the
Hong Kong financial secretary on January 28. Instead of asking the government to give
tax rebates, the HKICPA asked that the surplus be used to fund an otherwise nonexistent old-age fund and to raise allowances (tax exemptions) by 20 percent for dependent parents, grandparents, brothers, sisters, and the disabled.
To encourage hiring of disabled persons, the HKICPA asked the government to grant employment tax credits of 150 percent. It also asked for a reduction of the
corporate tax rate to 15 percent for corporate income under HKD 2 million.
A year ago,
Hong Kong was neither on the OECD blacklist nor the white list. I called Hong Kong gray. Boy, did I get flack for that one even though it was 100 percent correct. As of today, Hong Kong has 18 double tax avoidance agreements with tax information exchange agreements. The most recent signings were with
France, Japan, New Zealand, and Switzerland, and more are on the way. Yet no matter how many are signed,
Hong Kong simply will not catch up with Singapore in this area. What is notable, though, is that neither
Hong Kong nor Singapore has anything on the
books with the United States - and a U.S.
double tax avoidance agreement for either jurisdiction appears highly unlikely.
