Tax Compliance An Increasing Factor In Asian Wealth Planning
Tuesday, November 08, 2011

The findings of a report on the future of Asian trust and estate planning services, released by the Society of Trust and Estate Practitioners (STEP) during its recent conference in Singapore, point out that, while tax is not the major driver of demand for Asian wealth planning, regulatory initiatives to improve tax compliance will increase in the region.

As the newest and fastest growing region in the world for wealth planning, STEP’s findings show that its contributors predict that increasing regulatory initiatives – especially tax compliance – will make their lives more difficult, both for service providers and their clients.

It is expected that “the development of the industry is going to follow a very predictable and conservative path towards a more tax compliance way of offering structures,” and that clients will be scrutinised much more so than before. This could result in smaller competitors in the sector having a harder time dealing with the burden of compliance that is described by some contributors as becoming prohibitive.

Differences emerge in client and provider behaviour in Asia over more established international financial centres (IFCs). For example, it is said, “the Asian cultural background means that wealthy families are often reluctant to relinquish control over their assets to third parties. At the same time, they are particularly sensitive to fees for wealth planning services.” This combination is reported to be one of the main reasons behind the popularity of private trust companies for asset protection.

In terms of providers, it is considered that the big difference in the region, as against other established IFCs, is the dominance of banks in the wealth planning industry; and that their importance across the spectrum of services - from advice to administration – “is unlikely to diminish so long as the absence of onerous tax legislation keeps the need for advice relatively simple.”

In fact, it was accepted that tax is not the major driver of demand for trust structures in Asia. “Asset protection, succession planning, and then tax, in that order” was one view of the main drivers of wealth planning in Asia, as “there are not the same cross border tax challenges as in the West.”

It is predicted that both Hong Kong and Singapore will remain primarily offshore focused in wealth planning, but that they have different strengths. Singapore is seen as “no match” to Hong Kong on the investment banking side and in capital markets, while Singapore is being perceived to be more of a private wealth market and the dominant centre for private client trust services in Asia. Hong Kong is not seen as an administrative centre as much as Singapore, but “is more sales and middle office; file keeping and resolution making.”

The impact of China as a force for change in wealth planning was “hotly debated”. While it was felt in some quarters that “it will be a long time before we move to planning for the onshore assets of mainland Chinese people,” it was also considered that compliance was difficult as the tax laws in China are increasingly complex and changing rapidly.

The view was expressed that, while Shanghai will eventually outgrow Hong Kong as the onshore financial centre, Hong Kong will remain the offshore centre for China.

STEP Chief Executive David Harvey said: “The picture that emerges from this research is of an industry confidently taking its own path of development into a future that is both similar to, and quite different from, the route followed by more established IFCs.”