Deloitte China's US Tax Partners Featured in Hong Kong General Chamber of Commerce's Publication on the Recent US Tax Reform

Hong Kong General Chamber of Commerce recently published an article from Deloitte, 'Impact of US Tax Reform' authored by our Deputy Tax Managing Partner, Greater China Region Patrick Yip and Tax Partner Candy Chan in The Bulletin.

On December 22, 2017, U.S. President Donald Trump signed into law the Tax Cuts and Jobs Act (TCJA), which many have hailed as the biggest tax reform in the United States since 1986. Of the many provisions in the 1,097-page TCJA, a few stand out in respect of their potential implications to non-U.S. companies, such as those from Hong Kong and Mainland China, doing business in the U.S. (U.S. Inbound) and Hong Kong or Mainland Chinese companies owned by U.S. shareholders (U.S. Outbound). 

On U.S. inbound investments, the most headline grabbing element of the TCJA is likely the dramatic reduction in the U.S. corporate income tax rate from 35% to 21%, which should be a boon to many foreign groups with U.S. subsidiaries. However, the sharp reduction in tax rates and other tax incentives would invariably lead to a significant decline in revenue collection by the government. To pay for this anticipated shortfall, the TCJA included a number of revenue raising measures.

For U.S-owned foreign companies, what seems like the most welcome news – that profits earned by these companies, when repatriated back to the U.S. corporate parent (but not applicable to U.S. individual shareholders), would no longer be subject to U.S. tax, the so-called “Participation Exemption” – is offset by a number of complex revenue raising provisions that could hit the U.S. parent companies (and individual shareholders) hard.

Further than that, U.S. individual taxpayers who do business overseas through their foreign companies may be caught in the crossfire of GILTI and the Transaction Tax that could lead to a higher tax burden. It is expected that many of these U.S. individual-owned foreign companies would have to be restructured to minimize the otherwise heightened tax exposure.

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