Wednesday, November 9, 2016

Will USA Now Get Competitive?

Hong Kong, with the lowest taxes in the world. Extremely few people are taxed at all, and the few that are taxes are already low.  Now Hong Kong is cutting taxes again. The way they are doing it is brilliant:
As of the current financial year, qualified companies can have their profits tax halved (from 16.5 per cent to 8.25 per cent), and see all their interest expenses become tax deductible if they choose to set up a CTC in Hong Kong.
What is a CTC?  How is it brilliant?
Professional services firm PwC explains a CTC as being, in effect, an organisation’s “in-house bank,” responsible for a range of finance functions, including regional processing of payments, liquidity management, intra-group financing and capital-raising. 
In essence each company that becomes its own bank will get tax advantages.

No sane people allows government to handle money, and three private companies issue the currency in Hong Kong.  USA has a similar legal fiction, with nine regional fed orgs owned by private banks, but it is hegemon controlled.

It sure sounds to me like Hong Kong will cut taxes on anyone who does vendor financing out of Hong Kong.  Further, you can run any other theory-based financial regime out of Hong Kong.

Hong Kong is not really anarchistic, it is polyarchistic.  that is it tolerates many regimes within one polity.  Nice trick to pull off.

I expect Hong Kong to win the FinTech capital race, simply because they keep cutting taxes on winners.  Way to go, and way to be a the heart of the Belt and Road initiative.

Will USA now start cutting taxes?

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11 comments:

Anonymous said...

John,

I'm curious about the tax situation for a U.S. citizen living and working in Hong Kong as a self-employed entrepreneur: Would this scenario be favorable for one to retain most of their income and pay the fewest income taxes (or even none at all), while remaining a U.S. citizen?

Is this arrangement possible and would you recommend it? Or is it not worth it?

John Wiley Spiers said...

I've never spent enough time overseas to worry about tax implications.... you'd have to talk about it with a CPA...

John

Anonymous said...

The U.S. is the only country in the world that taxes their citizens on income earned abroad as well as domestically, but as John said do hire a CPA.

Anonymous said...


I think leaving the U.S. as a U.S. citizen if you're a self-employed entrepreneur (being a sole-proprietorship with only you as the single employee) to help reduce your income taxes is probably not necessary, and will most likely create more headaches for you. Remember that the federal U.S. income tax code greatly favors and benefits self-employment - just talk to any small-business accountant. Make your lifestyle your business, and use tax and expense deductions to reduce your taxable income.

Anonymous said...

I've never been to Hong Kong, but from what I've read the real estate market is apparently insane: Very high prices/rent for very small square footage accommodations. I'm not sure I would want to live there, although visiting Hong Kong would be nice.

John Wiley Spiers said...

3:20 am Anonymous.... leaving for tax reason hits on a great topic.... all taxes are paid by your customers, except taxes on net profit, which can be implicitly paid by your customers.... to worry about taxes on net profits is to miss the point of being in business.... lifestyle, not accumulation. I fully expect Trump (he should!) raise biz taxes to 90% to pay down debt and fund pensions... in which case it is the 1950s all over again, and the golden era for small business... (people will spend their net inside their businesses upon themselves, avoiding taxes...) No one needs to leave usa to avoid taxes...

John

John Wiley Spiers said...

to Anonymous 9:58 am

When I can get around to it, i will be living six months a year in Hong Kong. it is fabulous... sure real estate is expensive, but your crib is where you sleep and sometimes shower... the rest of the time you are being in nice places working, eating, studying, exercising... so a small apt is no problem....

John

Anonymous said...


Stay in the USA, start your own self-employed/life-style business (using a good tax accountant), and live in a state with no state income tax (like florida, alaska, wyoming, south dakota, texas, nevada and Washington I think), and you should do fine.

The 50's as golden era for business is interesting. With a higher tax rate of 90%, were their more tax deductions back then or less?

John Wiley Spiers said...

Well, probably both, depends on what the policy is.... but the one where you make your offices nicer than your home has not changed... and another play is to rent until real estate crashes, then pick up the building for pennies on the dollar... and on contract, with no interest associated. I've seen this before... the ex-nihilo credit regime is over...

John

Anonymous said...

John,
How far do you think real estate prices could fall and how fast or slow?

John Wiley Spiers said...

Well, they cannot fall far enough or fast enough for me, and for about 3/4s of the population, as far as I am concerned... the bottom is not low price, it is no customers... between the depression and the end of WWII not much real estate traded hands, but afterwards the 1950s, prices were about where they ended and then up from there, shooting up in the 1970s, after 20 years, as ex nihilo credit was introduced. So figure on 1960 prices (but in gold, not ex nihilo credit tally)? But never mind, rent until there is a bottom... and then avoid the 90% taxes by having your business use its net profit to buy the building you are renting on a contract (at no interest) and avoid the 90% taxes... the future is bright for the self-employed...

John