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News From Asia.

By John Dietz - Email Editor

Date : Oct 03, 2006

From tax and estate treaties, to basic governance, sorting through jurisdictional differences can be a daunting task. The speakers at the Asian Offshore Conference held in Thailand on September 27th-29th were a well-rounded group of international experts who were and are on the cutting edge of their respective nation’s treaties and laws. The conference was hosted at the fabulous Oriental Hotel in Bangkok, which is a “must-visit” for travelers to this region.

One week before the conference was to take place, Thailand’s military was in the middle of ousting the then Prime Minister Thaksin Shinawatra. Most of the people in the know saw this coming for some time. As far as social order, the rules in Thailand are simple: If King Bhumibol Adulyadej backed the coup, then it is business as usual. In Thailand, the king is not just a figure head, even though he is only a constitutional monarch with limited power; he and his recommendations really matter. The king is truly loved, respected and reverded. Thailand is safe. Go…you will love it.

On to business.

The economics of globalization are here to stay. Today’s real challenge is the implementation of business strategies across multiple jurisdictions. Take China for example. The economic story is well-documented. Growth reached record highs in the second quarter of this year, and their economy expanded by almost 11 percent in the first half of 2006. The growth rate in the second quarter was the highest in over a decade. When you look at China’s underbelly, you find immense pressure brewing below the surface: an economy that’s growth has been more or less out of control.

Anyone that’s been to Beijing or Shanghai knows all too well that both cities’ real estate booms makes the U.S.’s equivalent look tame. In fact, to give you a mental picture, think Los Angeles from the 1950’s to 1960’s before the urban sprawl. Automobiles are now becoming the catalyst for residents in Chinese cities to move out beyond their cities’ limits.

Worries over massive inflation have led China’s central government to step in, and as of August 1st, the State Administration of Taxation will enforce a 20 percent capital gains tax on individuals selling property. Other quick fixes include limiting individual eligibility to purchase homes solely for their own use. Capital requirements for developers will also be raised. A 5 percent sales tax will be imposed on sales of residences. There are some nuances within the new regulations, such as the capital gains tax will be refunded if you purchase another home within a year.

Foreign real estate investment into China was 4.5 billion in the first quarter of 2006. Foreign investment in years past usually meant investments made by Asian related countries; however, today European countries as well as the U.S. are major players.

It looks like the playing field is getting leveled out for the East meeting the West, but there are still many stark contrasts. For example, the Chinese mentality regarding Asset Protection is a bit different than their U.S. counterparts. It would be normal for a Chinese businessman living in the U.S. to own property in China using a distant relative—perhaps a second cousin on his spouse’s side of the family—who would hold title to the real estate. Loyalty and trust runs deep in these unwritten Chinese family rules, however, regulations and new laws are coming to challenge the old traditional family ways.

How different is Chinese thinking from the West? Can you imagine putting your second home in your brother’s name who is currently having marital problems? Most men in the West wouldn’t loan a wrench to their cousin Vinny. (I wouldn’t, he lost mine the last time I let him borrow it!)

In the end, as offshore practitioners, we are always looking for legal and ethical ways to enable all jurisdictions and people to do business together. Thomas Friedman wrote the book and coined the term The World is Flat, but he did not say it was tax free. Doing business in most countries is not just for big multinationals; it’s for everyone. With that said, many countries have tax treaties in place, and then many do not. To do business abroad you need to find professionals who have specific knowledge about doing business where you have an interest. World markets are an important consideration. Think of it this way: Do you want to wait around for the next real estate boom in your local market?

And of course “there’s always a bull market somewhere”…go find it, and let us help you put your Plan together.

Until next time,

John

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