Research Korner: Taxation Law

Hong Kong Taxation

Hong Kong Taxation   Answer Q1:             Hong Kong being considered as a free economy can be considered to have extreme low tax imposed on both individuals and in business. In the case provided, it has been mentioned that Lisa is a Hong Kong resident but has been appointed as a senior sales Manager of a Spanish company. The company is currently operating in Hong Kong so Lisa is in charge for their Chinese operations.   It can be noted that Lisa’s salary was given under HK$ currency. In this regard, since the company is currently operating in Hong Kong, the company has an obligation to Hong Kong government and economy and all of their employees.  In Hong Kong, there is so called tax equalization policy in which Lisa can pay no more and no less tax for her work for the company.             Such policy has been designed for employees like Lisa as a neutral aspect in her compensation package. In which, she should bear tax burden equal to that which would have been borne had Lisa remained at home. As an employee, she is responsible during her assignment in the Spanish company for stay at home or hypothetical tax, which would be computed on the remuneration the employee would have earned and obtained if she continued to work in the Spanish company. In this regard, the tax can be withheld from the employee’ normal salary and is retained by her Spanish employer as a tax reserve.   In this regard, under Hong Kong taxation policy, the company where Lisa is working would be responsible for paying all required home as well as host country taxes on the company income, which consists of taxes on expatriate benefits during the assignment or work contract.   For various companies, employees like Lisa would not be tax equalized on income from non-company sources, like the investment income from the host country or from home, which indicated that the employee will remain fully liable for all actual global taxes payable on their personal income.  Under the equalization policy of Hong Kong taxation regulation, any tax savings will go to the employer, however, any additional tax liability will be shouldered by Lisa’s employer.             On one hand, the employer of Lisa can also implement a tax protection policy instead of abiding the tax equalization policy.  Under this approach, Lisa’s total income tax burden for Hong Kong and Spanish taxation policy is limited or restricted to the hypothetical home country’s income tax, or Hong Kong’s income tax. In instances that the actual home and host nations’ income tax are less than the Home country’s hypothetical income tax, like in this case, if Spanish income tax is less than Hong Kong’s income tax, the employee (Lisa) could keep the benefit.             Based on this case, Hong Kong taxation policy is able to provide equality on tax for employees, like in the case of Lisa, she should not worry too much on her tax on Hong Kong, because Hong Kong have been able to set up a taxation policy that can easily be shouldered by both the employee and the employer. 	 		 		  	   Answer Q2             In Hong Kong, issues of job descriptions when it comes to payment of tax do not have differences. Accordingly, employees in Hong Kong are considered as individual taxpayers who receive an income from an office or employment, regardless of whether the owner of the company is a Hong Kong resident or not, like in this case, Lisa is working for Spanish Company.  Hong Kong employees are being charged with salaries tax by filing up the Inland Revenue Department (IRD). Like any other employees in Hong Kong, Lisa should pay salaries tax on her income even if she is a sales manager or sales director. The computation for this may vary, depending on how much Lisa is receiving as a sales director or sales manager from her Spanish company.  Lisa must receive a tax return from IRD and she must complete and submit it before or during the due date even if she has no income which can be charged to salaries tax.              In order to compute the value of her tax, Lisa should need to report her income on the tax returns which are the B.I.R. 60 for individuals. Accordingly, any salary, wages as an employee or manager or even her director’s fees that she earn are still chargeable with salaries tax. In addition, the gross amounts prior to the deduction of her contributions to a recognized occupational retirement system or mandatory provident fund scheme should also be included on her report.             In this regard, even if Lisa is working under Spanish company, all the payment that she received from her employer are taxable, regardless of when the payment occurred and whether the amount paid was in line with the terms of employment or in excess of which.

Hong Kong Taxation

Hong Kong Taxation Answer Q1: Hong Kong being considered as a free economy can be considered to have extreme low...

Inheritance Tax

I.              Introduction The area of inheritance tax (IT) has been under siege from critics recently. Normally, taxes on this area tend to be only applicable to those exceeding the established threshold by the existing law. And traditionally, the said threshold tends to be considerably high, such that only the wealthy would be covered by such taxes. However, there are some criticisms about the said tax affecting the middle income residents of UK, especially homeowners. Homeownership has become considerably costly for people that it tends to cover the thresholds held by inheritance tax laws.        II.            Inheritance Tax The purpose of implementing taxes like the IT has been characterised as a means to “counterbalance” the inequality of wealth in Britain. ( 2004) This shows why the middle income homeowners of UK tend to be greatly affected by the said tax. However, there are means of avoiding the payment of IT. As (2004) indicated in his article, those with “moderate wealth” tend not to avoid this because their dwellings may probably be their main asset. This means that it would be rather impracticable to give that asset away before they die just to avoid the tax. Nevertheless, proper tax planning could specifically help these people of “moderate wealth” to deal with the financial duties that the government require of them through IT. A more pressing issue at this context is that the wealthy have the means to dodge the IT through the “loopholes” it offers them. ( 2005) In a sense, information regarding tax planning may only be viable for the wealthy because they have unmitigated access to legal consultation and advise as opposed to the rather limited access of the middle class homeowner. Moreover, it only shows that the difference between these individuals is their initiative to reduce their liabilities. And with the presence of internet and web technology, information regarding these actions is readily accessible to everyone. III.           Public Perception Taxpayers in UK appear to see the imposition of the IT as unfair in general. This is supported by the article of  (2006) based on a poll made in 2006. The study noted that ¾ of the respondents (3,200 people) indicated that IT was indeed unfairly imposed on them. Currently, the threshold is £285,000 which could easily be met by the regular homeowner with the rising prices of homes and dwellings in the market.  (2005) claimed in her report that one in every ten houses in Britain would be liable for IT. The report claimed that over 12% of the entire homeowners in Britain have acquired their homes by paying over the threshold held by IT. Moreover, (2006) also indicated that most of the respondents (39%) are aware of this threshold. This means that this information is only limited to a small number of individuals in Britain. Most of them will thus not be able to dodge the taxes imposed by IT when they transfer their wealth to their kin.        IV.          Lack of Awareness of Tax Planning Tax planning measures could still allow for every homeowners in UK, be it affluent and those of moderate wealth, to deal with IT. Tax planning regarding their assets tends to cover the accumulations of all assets and liabilities of an individual and assessing whether it is covered by the threshold held by the IT. This means that knowing how much one’s asset is worth beforehand tends to reduce the possibility of paying for IT. In the same time, upon knowing whether one exceeds the threshold, then certain courses of action could be taken. For instance, married couples could avoid paying inheritance tax if they pass on their wealth to their spouse. This is similarly applicable to those who have registered under civil partnership. Another tax planning measure that could protect homeowners would be acquiring a home as joint tenants. This may be best implemented for married couples. This means that the spouse gets the whole ownership of the property tax-free the moment the other partner dies. Another alternative would be the acquisition of investments for relief. However doing such will only provide favourable treatment and not entirely avoid the IT. This means that this will only be a means to reduce the amount of IT that a person is required to pay. This is the same with using up the assets to trusts as a part of tax planning. Other measures like the provision of gifts worth £3000 annually could reduce the liability of paying in the IT. However, it is required by law that doing such actions should last at least seven years before one dies such that these escape the overall amount paid for IT. These actions are less likely to be known by the lay individual. The lack of awareness of those of moderate wealth tends to be the key to their loss in terms of paying for inheritance tax. This is confirmed by the report of  (2006) indicating that only 39% of the 3,200 surveyed were aware of some of these measures in reducing their liabilities in IT. V.           Conclusion The discussions above have presented the measures for those with moderate wealth to minimise the effects of Inheritance Tax. Basically, planning does have a huge say in the amount on which an individual would pay once wealth is transferred when he/she dies. Making the public aware of the basic information regarding these measures could help a whole lot of UK homeowners. In the same way, constant vigilance among these middle class homeowners regarding their rights and entitlements is also required such that they could plan how their kin avoid paying for these taxes.

Inheritance Tax

I. Introduction The area of inheritance tax (IT) has been under siege from critics recently. Normally, ...

Title: Importance of Company Income Tax in Nigeria

Title: Importance of Company Income Tax in Nigeria   The importance of corporate income tax as a primary and a major source generating revenues for government funds cannot be overemphasized. Okezie (2003) agrees that company income taxes are necessary to raise federal revenues. In the 2006 US federal economy, for instance, company income tax accounted for 14.6 percent of all its revenues and 2.7 percent of GDP. Likewise, Buettness and Fuest (2010) believe that corporate income taxes could also be used for as automatic   stabilizer for economic demand and capital market restrictions. Taxes have been classified into direct and indirect taxes.  Direct taxes are those which both   the impact and the final burden is borne by the payer while the indirect taxes, on the other  hand, are those which burden are expected to be shifted further down to third parties.    Nigerian tax policy for companies is regulated by the Companies Income Tax Act of 1979. The Act is contained in “Chapter 60, of the Federation of Nigeria (LFN) 1990 and is amended by subsequent Decrees (ACTS) including the Finance (Miscellaneous Provisions) of 1993 and other subsequent amendments thereto. The administration of CITA rests on the shoulders of the Federal Board of Inland Revenue which has the following powers and duties: I. It is responsible for the administration of the Companies Income Tax Act and Decree. It assesses and collects the necessary company taxes. 2. It can sue and be sued in its official name 3. It can acquire, hold or dispose any property held as security and account for the proceeds to the Minister of Finance. 4. It may authorize any person within or outside Nigeria to perform or exercise any of its powers except those stated under the first schedule to the Act. 5. It may (with consent from Finance Minister) appoint the Joint Tax Board to perform or exercise any of its duties or powers. (An Evaluation Of The Relevance Of Pioneer Income Tax Relief As An Alternative Investment To Companies In Nigeria, The Nigerian Observer, http://www.nigerianobservernews.com/3122008/features/features3.html, retrieved 24 April, 2011.)” Company Income tax rate is 30 percent which was effected since January 1, 1996. (Taxes in Nigeria, Nigeria Exchange Business, http://www.ngex.com/business/public/newsinfo.php?nid=2, retrieved 24 April 2011).” Nigeria has a population of over a hundred and forty (140) million where half are assumed to be in the working bracket; few   are engaged in salaried employment and; the majority does businesses ranging from small scale trading, farming and other crafts, partnership business and even small and large scale companies.  This said, the federal government’s potential in income generation deserves emphasis.   Although Nigeria has a promising feat of revenue income from corporate taxes, company income tax seems to be insignificant as a source of government fund. An article of Hadaycolar1 (2008) asserts that taxation in Nigeria had a lot of drawbacks especially in the areas of management imposition and efficiency administration. Area problems presented were based on the position of Lawal (1982) in Haydaycolar (2008) which ascertains that tax collection in Nigeria is promoted by the lack of adequate staff to carry tax collection, government mismanagement of tax collection which leads to reluctance of business taxpayers to comply with the tax policies, apparent bribery and corruption in the government offices, poor accounting record, substandard facilities in  tax systems, and tax evasion and delinquency from taxpayers.   Business entities in Nigeria are very successful in tax evasion. In fact, company income tax is often avoided and even evaded through variety of means.  Normally, businesses avoid taxes in the area of the form of business ownership wherein an investor establishes a business such that tax liability is reduced to the minimum. This problem is identifiable with the companies assessed to tax on profit at a rate (currently 30%) before dividends are distributed to owners. For instance, two businesses with similar investment, sales and profit potentials may pay widely different income taxes because they have different ownership forms. This gives advantage to the bigger and strong business to pay lower income taxes because it is not incorporated.  Because of this advantage also, investors often choose to establish either a partnership or sole proprietorship although the nature of their business indicates that it should be a corporation, all due to tax advantage.  Thus, most of Nigerian companies, either in small-scale or medium-scale areas register their businesses in partnership and proprietorship to evade the higher company income tax rate for corporations. After these problems are realized, the federal government of Nigeria would eventually hold on to its main objective of setting up income taxes to help finance government projects and infrastructures. References: 1.    An Evaluation Of The Relevance Of Pioneer Income Tax Relief As An Alternative Investment To Companies In Nigeria, The Nigerian Observer, http://www.nigerianobservernews.com/3122008/features/features3.html, retrieved 24 April, 2011.   2.    Buettner, Thiess and Clemens Fuest. (2010). The role of the corporate income tax as an automatic stabilizer. International tax and Public Finance, Volume 17, Number 6, 686-69. Retrieved from   http://www.springerlink.com/content/k7043w4045733347/.       3.      Hadaycolar1, 2008. The Problems and Prospects of Tax Collection, Discovering, http://bizcovering.com/accounting/the-problems-and-prospects-of-tax-collection, retrieved 24 April 2011.   4.    Taxes in Nigeria, Nigeria Exchange Business, http://www.ngex.com/business/public/newsinfo.php?nid=2, retrieved 24 April 2011.

Title: Importance of Company Income Tax in Nigeria

Title: Importance of Company Income Tax in Nigeria The importance of corporate income tax as a primary and a major source generating...

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