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US corporate tax cut incentivises Asian HNWIs to invest through companies

With the US corporate tax rate being reduced from 35 to 20 percent as part of the House of Representative's latest tax reform proposal, specialists believe that this could encourage more HNWIs to invest through corporations rather than as individuals. 

Last updated: 9 August 2018

The US House of Representatives approved its version of the tax reform legislation on 16 November, with one of the biggest highlights being a significant cut in corporate tax.

"As of now, gains on property sales are taxed at higher rates for corporations than for individuals and pass-through entities such as partnerships," said George McConnick, registered foreign lawyer at Withers. But after the reduction on corporate tax, McConnick believes that it may make investing in the US through corporations "more appealing" for Asian investors.

In addition to a reduction in corporate tax, the code rewrite lifts the income level for where the top rate kicks in for married filing joint status to US $1million. "This could lead to a decrease in tax for some;' Ishali Patel, associate director from tax consultant Buzzacott told Asian Private Banker. However, she said that itemised deductions would be severely limited under the proposed new rules, which may remove any tax benefits for HNWIs overall. "For Asian HNWIs who have investments in the US, they will be affected by the tax rate changes to the extent that they file a US income tax return as well as the restrictions on itemised deductions."

With U.S. Congress leaders still to meet to reconcile their differences over the legislation before a final bill can be passed into law, Patel said it is difficult to forecast the substantial impact of tax reforms to Asian HNWIs or corporate owners. "It is difficult to comment at the moment on this as both the Senate version of the bill as well as the Congress version have different proposals for the tax rates and both houses will need to agree before the bill is passed;' she said.

US President Donald Trump also mentioned plans to lift the federal estate tax in July. Valerie Wu, a Singapore­ based partner at law firm Pinsent Masons, told Asian Private Banker that families in Asia have a lot of connections in different parts of the world, and the US and UK are always among the top two.

"If there is indeed going to be an abolishment of the estate tax, I'm sure they will welcome it and they might have to review their existing structures to see if any changes need to be made;' Wu said.

Article first seen in the Asian Private Banker

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