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MEXICAN HOUSING MARKET RETAINS VIGOUR DESPITE US PROBLEMS |
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As world financial markets reel from the US subprime meltdown, one economy avoiding the fiscal maelstrom is Mexico. Its marketplace avoided trouble by using fundamentally sound credit policy while the housing market has different standards allowing it to experience safer and more natural growth. With a shortage of 6 million houses, Mexico's home construction sector is underdeveloped, with only 6% of the 26 million units financed with mortgages, compared to almost 70% in the US. Most Mexicans inherit their homes, buy with cash, or build by hand. There is tremendous demand for home ownership in this nation of 108 million, so lenders can use saner policies when choosing buyers. This is a shift from 1994, when Mexico devalued the peso, and watched as inflation and interest rates soared, pushing homeowners into default as many feared the banking sector would collapse. Credit became so tight many Mexicans paid cash upfront, constructed their own domiciles, even by adding a room at a time.
In Mexico, the ‘subprime’ category does not exist as lenders refuse to make such unsafe bets to expand the bottom line. Moreover, fewer Mexicans flip homes or refinance mortgages. In addressing its housing shortages, the nation created a mix of government initiatives, private investment and launched a risky gamble by entrepreneurs establishing a local approach on mortgage lending, employing knowledge of family and neighbourhood ties to increase the likelihood that loans were repaid. Instead of wasting scarce funds on public housing, the government restructured mortgage laws, set stricter credit guidelines, standardised appraising and encouraged lenders to build up financial markets. Riding high on this success and increasing consumer expectations, President Felipe Calderon has now publicly announced a national goal of a million new ?mortgages a year by 2010. |
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QATAR RATIFIES SEYCHELLES DTAA |
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Qatar ratified a double taxation avoidance agreement between Qatar and the Seychelles which was signed by representatives of both governments in July 2006. The agreement permits investments made in either country from the other to qualify for tax breaks on dividends and royalty payments.
The decree to ratify the agreement took effect on 3 April 2008. |
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BAHRAIN NAMED FASTEST GROWING FINANCIAL CENTRE |
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According to the third edition of The City of London’s Global Financial Centres Index (GFCI3), Bahrain is the world’s fastest growing financial centre rising by 59 points and now ranked 39th out of the 50 rated financial centres. This makes it the only Gulf state covered by the report to have moved up the Index in the last six months – Dubai slipped two places to 24th and Qatar was down three places to 47th.
The GFCI report ranks financial centres based on external benchmarking data and current views of competitiveness. Factors of competitiveness are grouped into five key areas: (1) people; (2) business environment; (3) market access; (4) infrastructure; and (5) general competitiveness.
In figures published by the Central Bank of Bahrain, Bahrain’s gross domestic product currently stands at BD6 million (USD15.7 billion) to which the financial sector contributes more than 25%. |
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US STATES HAVE HIGHEST CORPORATE TAX RATES |
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A study carried out by the Tax Foundation, a nonpartisan tax research group in Washington, reveals that most American states tax companies at a higher rate than any other country in the developed world. Counting the federal rate alone, the US has the world’s highest corporate tax rate but if average sub-national rates (federal plus state in the US) are added, Japan, with a combined rate of 39.54% becomes the highest-tax location.
The study breaks the tax down state-by-state, adding each state’s corporate tax rate to the federal corporate tax rate. When compared to other OECD countries:
• 24 US states have a combined corporate tax rate higher than top-ranked Japan.
• 32 states have a combined corporate tax rate higher than third-ranked Germany.
• 46 states have a combined corporate tax rate higher than fourth-ranked Canada.
• All 50 states have a combined corporate tax rate higher than fifth-ranked France.
The state of Iowa topped the Tax Foundation’s corporate tax table with a combined rate of 41.6% and Texas had the lowest combined corporate tax rate at 36%. |
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GUERNSEY INTRODUCES CASH CONTROL LAW AND NEW TRUST LEGISLATION |
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The Cash Controls (Bailiwick of Guernsey) Law 2007 officially came into force on 18 February 2008 in response to recommendations by the Financial Action Task Force (FATF) to combat money laundering. The Law provides that persons travelling into and out of the Bailiwick of Guernsey must declare cash amounts of EUR10,000 or more, or the equivalent amount in another currency, to a Customs Officer. Such persons will need to declare the nature and amount of cash, their personal details, the provenance and intended use of the cash, the transport route and means of transport. Failure to declare the cash may render the person importing or exporting it liable to prosecution, and may result in a prison sentence, fine or to both, and the cash will become liable to forfeiture.
Another addition to the Island’s legislative framework is the Trusts (Guernsey) Law 2007 which came into force on 17 March 2008. The major changes incorporated in the new law are:
• Introduction of non-charitable purpose trusts – instead of bringing in a completely separate regime for purpose trusts, the new legislation permits the establishment of trusts to hold property or to exercise functions without conferring benefit on any person.
• Removal of limits on length of a trust’s duration – removes the previous 100 year time limit for Guernsey trusts, allowing perpetual trusts to be created. The 100 year limit remains for existing trusts.
• Clarification of the position of retiring trustees – creates a non-possessory lien over trust assets in favour of the retiring trustees and simplifies the ability of a previous trustee to enforce an indemnity given in its favour where it is not a party to the document by which the indemnity is given.
• Clarification of reservation of powers – new law expressly provides for the reservation (or grant) of certain powers.
• Clarification of the circumstances under which information has to be given to beneficiaries.
• Disclosure of letters of wishes.
• Abolishment of liability of directors of corporate trustees.
• Power of accumulation.
• Limitation periods and alternative dispute resolution.
• Powers of attorney. |
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INDIA & MYANMAR SIGN DTAA |
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India and the government of Myanmar have signed a Double Taxation Avoidance Agreement (DTAA) on 2 April 2008. The DTAA will cover income tax and surcharges in the case of India, and income tax and profit tax in the case of Myanmar.
According to the Indian government, the agreement provides the following:
• Business profits will be taxable in the source state if the activities of an enterprise constitute a permanent establishment in the source state.
• Profits of a construction, assembly or installation projects will be taxed in the state of source if the project continues in that state for 270 days or more.
• Dividends, interest and royalty income will be taxed both in the country of residence and in the country of source. The maximum rate of tax to be charged in the country of source will not exceed 5% in the case of dividends and 10% in the case of interest and royalties.
• Capital gains from the sale of shares will be taxable in the country of source.
There are also provisions for the exchange of information between the tax authorities of the two countries, and anti-abuse provisions. |
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NEW ZEALAND INTRODUCES NEW TAX RULES FOR LIMITED PARTNERSHIPS |
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The Limited Partnerships Bill introduced in August 2007 (split into two: (1) Limited Partnerships Bill and (2) Taxation (Limited Partnerships) Bill) is now law, giving effect to new regulatory and tax rules for limited partnerships, and updating the tax rules for general partnerships.
Limited partnerships are widely used as a vehicle for investing into another country and New Zealand law has established a new regime based on the limited partnership model commonly used overseas to facilitate venture capital investment. It also modernises and clarifies the tax rules on partnerships generally.
ARCHIVE LINK
“Fraud on a Power and Limited Partnership”
January 2008, Issue 182. |
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