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SOVEREIGN MAN

You didn’t get any of the benefits. Why get stuck paying the bill?

[Editor’s Note: Sovereign Man Chief Investment Strategist Tim Staermose is filling in for Simon today.]

Hong Kong’s total population is around 7 million. The workforce is 3.75 million.  So generous are the tax breaks and allowances, only about 1.5 million people pay any tax at all.

A single person can earn HK$108,000 a year (about US$14,000) before owing any tax.  And a married person with a dependent spouse can earn HK$216,000 (US$28,000) tax-free.

For those who do pay tax, the maximum rate tops out at 17%… and most people pay less.  There is no sales tax, no VAT, no capital gains tax, and no tax on dividend income.  I can even buy all my favorite wines here completely free of tax or duties.

With such a liberal tax regime, you’d think the Hong Kong government would be struggling to make ends meet, right?

Wrong.

In fact, the Hong Kong government’s coffers are awash with so much money it just announced a projected budget surplus of 3.5% of GDP for the fiscal year ending March 31, 2012.  This will leave it with cash reserves of about HK$662 billion (US$85 billion), or 22 months worth of expenditure.

Looked at another way, the Hong Kong government is sitting on about US$12,150 in spare cash for every man, woman and child in the territory, and they are rebating much of this to citizens over the next few months.

The US government on the other hand has DEBTS of about US$49,500 for each and every American, not including all the off-balance sheet liabilities, yet the maximum tax rate tops out in the mid 30% range.

If you’re a young person just starting out in life, why bother sticking around a place where you’re guaranteed to have a huge portion of your hard work confiscated by taxes, just to pay interest on a debt that was accumulated long before you were around?

You didn’t get any of the benefits. Why get stuck paying the bill?

There are a lot of places in the world that are full of opportunity, and you get to keep much more of what you earn. Hong Kong is just one of them.

As Simon always writes, no place is perfect. And to be fair, it’s not all cookies and unicorns here in Hong Kong. It’s a dense, crowded city. Real estate and rent can be very expensive (though there are cheaper alternatives). And the humid, subtropical weather may not be for everyone.

Life is about calculated compromise, though.  And young people have little to hold them back. You’re free of mortgage debt and family obligations, opening up a world of possibilities.

On one hand, you can begin your life in a high-tax, low-opportunity, kleptocratic police state that intends on using you as a milk cow for the rest of your working life. On the other, you can choose an easy-going, free-wheeling tax haven where everyone has the opportunity to succeed.

The choice seems obvious. It simply takes the courage to follow through.

Our goal is simple: To help you achieve personal liberty and financial prosperity no matter what happens.

If you liked this post, please click the box below. You can watch a compelling video you’ll find very interesting.

Will you be prepared when everything we take for granted changes overnight?

Just think about this for a couple of minutes. What if the U.S. Dollar wasn’t the world’s reserve currency? Ponder that… what if…

Empires Rise, they peak, they decline, they collapse, this is the cycle of history.

This historical pattern has formed and is already underway in many parts of the world, including the United States.

Don’t be one of the millions of people who gets their savings, retirement, and investments wiped out.

Click the button below to watch the video.

About the author: Born to a Danish father and British mother, in Dar Es Salaam, Tanzania, Tim Staermose has led an international life since the day he was born. Growing up, he also lived in Egypt, Denmark, and Singapore, before eventually settling in Australia, where he completed his education and took out citizenship. Since then he has also lived and worked in Hong Kong, and Manila, Philippines, in the field of equity research — both for a bulge-bracket Wall Street investment bank, and for an independent investment research firm. Today, when not traveling the globe looking for investment and business opportunities for the Sovereign Man community and catching up with his diverse, multinational group of friends, he divides his time between Hong Kong, and the Philippines.

Comments on this entry are closed.

  • benjamin

    Tim, great post, very informative. I wasn’t aware things were comparatively so much better in HK.

    • JJ

      Let’s not forget that US Citizens are responsible for their income anywhere in the world. Why? Because you’re a slave, that’s why. You shut your mouth and pay your taxes slave, and don’t ask questions.

  • http://www.BreakingOut.NET/ Kevin Wells

    Its true Simon what you say about Hong Kong from the fiscal point of view. 

    But the lifestyle there for many is corporate robot slave, long hours, don’t leave the office before the boss, live in a tiny apartment in a high rise. Not what I like. 

    That plus shopping, shopping and more shopping. That, plus eating.  Thats what the majority do there in their limited free time.On the other hand I can think of worse places. I still think the pluses of HK outweight the minuses.

  • andy

    Such an inspiring article, i started to learn mandarin recently, your site was one of the reasons to do so. Thanks.

    • Tw9277

      They speak Cantonese in HK

    • http://www.animalsdinosaursandbugs.com/The-Future.htm Peter Legrove

       Check out echinacities and get a job teaching English in China. That way you can learn Mandarin living in China

  • John Conners

    Not sure if other Sovereignman readers have seen the proposed SEC regulations regarding money market funds.  One of the proposed rules is that investors can only receive 97% of their redemption request upfront, with the other 3% to follow 30 days later.  Although this is being discussed under the banner of “investor protection”, I imagine it is intended to make riskier assets more attractive (e.g., gov’t bond or stock market funds).

  • http://www.bzemic.com/impossibleInstinct/ steve ward

    I’ve noticed that too as i explore and setup shop in other countries. there are always + and – so it is in the best interest to really dive deep which includes if possible a trip there or know people who have been there.

    • Ozawa

       Don’t forget the smog.

      • http://www.bzemic.com/impossibleInstinct/ steve ward

        yea a lot of cites in the usa have smog, I’m useing the usa because i know LA and a few other city’s have smog

      • http://evilspeculator.com molecool

        Super clear today in L.A. – how was it in Beijing or Shanghai?

      • http://www.bzemic.com/impossibleInstinct/ steve ward

        I’m not in either place but it seems there are some smog in both places. Could just be the odd weather that seems to pop up  

  • https://twitter.com/quant18 Eric

    A lot of the tax revenue comes from 10bps stamp duty on stock transactions, which is (a) unpredictable and (b) makes spreads bigger in the stock market. Last year the HK government predicted a deficit but ended up with a surplus — they couldn’t figure out what to do with it so they just paid out HK$6,000 (about US$750) to every permanent resident over the age of 18, including the ones who don’t pay tax. Which actually ended up being really bad for the Americans in Hong Kong because unlike a tax refund, the IRS considers that direct transfer payment “unearned income” and claims we should pay ordinary income rates on it without the Foreign Earned Income Exclusion. This year they’re just rebating people’s electricity bills, waiving business registration fees, and that kind of thing.

  • $10039200

    I moved to Hong Kong from Connecticut 30 years ago and have had a wonderful life here.

  • KJQ

    While I agree with the comments that ‘getting out of Dodge’ should be seriously considered, the last place I would move to (despite current appearances & assurances) is communist China (Hong Kong zone or not).  I would prefer something like Chile which Simon recommends. Mongolia sounds good too, but it’s geographically too close to China and Russia for my liking.

  • http://www.facebook.com/profile.php?id=9214474 Mike Gropp

    I wanted to give a heads up to my fellow “Sovereign Men,” with my read on China. I rarely post and 1/2 my posts are edited out anyway for (being too controversial? I don’t know haha) But with the recent talk I’ve been seeing on the internet among like minded folks I figure a quick shoutout is in order.

    I’ve been in China for 2 years now, and have visited over 10 different cities, though most my time has been in Beijing.

    1) Hong Kong belongs to China. Whatever separation exist, though real and beneficial now, can and will change in the future. If China has problems in the future, expect Hong Kong to have problems as well.

    2) China is is a time bomb.

    A. They are heavily debt financed. Currently Chinese soverieng debt stats at 125%, conservatively. This is all debt national/local and all SOEs – anything the government will not allow to default. The US is over 100%, but we have the best bond market in the world; and our GDP is more private sector providing goods/services people demand, as opposed to State-mandated projects. A large portion of China’s GDP has been government expenditures.

    B. Social unrest. 4 million rural Chinese have their land taken each year, then sold for on average 40x more to land developers. People still disappear. Dissidents are put under house arrest and/or beaten. As a foreigner (unless you’re of Chinese/Taiwanese descent) won’t run into this personally as things currently stand, but it’s a boiling kettle nonetheless. They aren’t afraid to grab their citizens land now when times are good. What about the gold and money in banks within their country when times are really bad? Bank in Singapore, not Hong Kong.

    C. Economic issues. A weak bond market and a sham stock market, means heavy investment in the only other options: real estate and precious metals. They are still building ghost cities. Real estate rices are already beginning to take major hits. The precious metals market is picking up because real estate is falling through. The government is still hoping China will be a major exporter which comes to blows on multiple fronts with reality. (1) There are 1.3 billion Chinese. They can’t do what Japan and other small nations have done for their whole country – the demand isn’t there. (2) Chinese are demanding higher standards of living; which means increased wages. It also means less pollution which will also increase costs. China is the world’s worst polluter. This will lead manufacturers elsewhere.

    China’s currency is under pressure to rise from it’s artificially pegged level. This will also drive up costs further pushing manufacturers to other places for cheap labor.

    D. Horribly corrupt government/system. Google for details.

    My conclusion: I see China being good for another 3-5 years. I predict the yuan appreciating to 6:1 by the end of this year or next. I think it’ll land between 5.5 and 5.0 to 1.  Unless there is a major shift (which is highly unlikely) in China: true democracy, personal freedoms, and a considerably less corrupt rule of law / court system.. I predict incredible upheaval as late as late as 2018. The currency will take a major hit, the economy will take a huge hit. With everything going as best as can be expected after this it’d be another 10-15 years before China is hot again.

    I speak, read, write Chinese, and plan to use it the next few years to gather capital for a future business endeavors. However, if you are just planning to make the leap like I did over 2 years ago, don’t learn Chinese and don’t come to China. It wouldn’t be worth the investment.

    Go Spanish, and go to South America. Chile and a Chilean passport is my current exit strategy with a ~3 year timeline.

    • http://evilspeculator.com molecool

      Let’s meet when you land there, Mike :-)

  • Guest66

    Tim’s avoid junior miners call came at a major bottom in the market. 

  • http://www.animalsdinosaursandbugs.com/The-Future.htm Peter Legrove

    I used to live in HK now I live in Guangzhou, China and now Guangzhou has surpassed HK and is the place to be. So if you are
    planning a trip to Asia check out China and see what the next superpower looks
    like. And you’ll be amazed. It is cheaper here than HK and the food is better.
    Actually most things are cheaper except brand name goods. So if you are into
    brands HK is cheaper. HK is a ‘used to be’ city it used to be a great place but it just
    got left behind by China’s rise. Now China is the place to be.
     

  • http://www.animalsdinosaursandbugs.com/The-Future.htm Peter Legrove

    Another thing: You guys might be right about the end of America and taxing
    everybody they can. I have a brokerage account in HK. I just received an
    American IRS form, W-8BEN, from my broker that I have to fill out because I
    have one American ETF in my account and I am not an American. And to top it off
    I have to fill it out before March 1 and if I don’t I will not be able to sell
    the ETF until I do so. From the form the broker sent me it says ”Foreign
    persons are subject to U.S. tax at a 30% rate on income they receive from U.S
    sources that consist of:” and there is a list of sources, so it is time to sell
    my U.S. stock and buy some China stocks.
     

    • http://evilspeculator.com molecool

      What country do you live in? Because if they withhold the 30% and you live in an country the U.S. has an OECD treaty with you may not get taxed twice (i.e. at home). I also think there are forms available so that you can choose where to get taxed. Talk to a tax professional in your country who is verse with OECD double tax regulations.

      • http://www.animalsdinosaursandbugs.com/The-Future.htm Peter Legrove

        Thanks I’ll look into it

    • http://www.bzemic.com/impossibleInstinct/ steve ward

      wow, 30% rate for a etf that seems high to me 

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