Cyprus will not leave the euro

www.bethelfinance.com/rm

 Cyprus has no intention of the leaving the European single currency, the country's president says.
President Nicos Anastasiades said: "In no way will we experiment with the future of our country."
He said the financial situation was "contained" following the 10bn euro bailout deal with the EU and IMF.
 Banks opened on Thursday for the first time in nearly two weeks amid severe new rules imposed as part of the bailout deal.
Queues formed of people trying to access their money, but the mood was generally calm.
By Friday, banks had returned to their normal working hours and there were no longer reports of big queues.
"We have averted the risk of bankruptcy," Mr Anastasiades said on Friday. "The situation, despite the tragedy of it all, is contained."
He told a meeting of civil servants: "We have no intention of leaving the euro."
But he accused other members of the eurozone of making "unprecedented demands that forced Cyprus to become an experiment".
 Cyprus needs to raise 5.8bn euros ($7.4bn; £4.9bn) to qualify for the bailout, and has become the first eurozone member country to bring in capital controls to prevent a torrent of money leaving the island and credit institutions collapsing.
As well as a daily withdrawal limit of 300 euros, Cypriots may not cash cheques and those leaving the country will only be allowed to take 1,000 euros with them.
 Payments and/or transfers outside Cyprus via debit and or credit cards are allowed up to 5,000 euros per person per month.
 Depositors with more than 100,000 euros will see some of their savings exchanged for bank shares.
 Foreign Minister Ioannis Kasoulides said on Thursday that such controls could gradually be lifted over the course of the month.
 But many economists predict the controls could be in place for much longer.

Cyprus capital controls

• Daily withdrawals limited to 300 euros
• Cashing of cheques banned
• Those travelling abroad can take no more than 1,000 euros out of the country
• Payments and/or transfers outside Cyprus via debit and or credit cards permitted up to 5,000 euros per month
• Businesses able to carry out transactions up to 5,000 euros per day
• Special committee to review commercial transactions between 5,000 and 200,000 euros and approve all those over 200,000 euros on a case-by-case basis
• No termination of fixed-term deposit accounts before maturity

 

Jersey continues to maintain a high rank, among all major competitors offshore

www.bethelfinance.com

 Jersey has retained its top spot as the highest ratted offshore jurisdiction in the latest biannual Global Financial Centers Index ( GFCI ) despite an overall fall in the rankings for the Channel Islands amid fierce onshore competition.
 Among offshore jurisdictions, Jersey placed highest in 28th place, next followed by Guernsey (31st), the Cayman Island (41st) and the Isle of Man (43rd). London retained its place as the top financial center, above New York, Hong Kong and Singapore.
 Jersey reported that although its overall rating had improved since the last Global Financial Centers Index report, in which it ranked 20th, particularly strong performances from a number of major cities, including Paris, Vienna and Kuala Lumpur, saw its position relative to other financial centers fall. jersey now places just behind Melbourne, Paris and Munich and ahead of Oslo and Qatar.
 Geoff Cook, the head of Jersey Finance - the promotional agency for Jersey's financial services industry, said : " In the last eight consecutive Indexes, Jersey has been the highest rated offshore jurisdiction. It is encouraging that Jersey continues to maintain such a high ranking, ahead not only of all the main offshore competitors, but also above a number of financial centers in EU jurisdictions, such as Malta and Dublin."
 " Recent market conditions and a remarkable period of regulatory change have presented significant challenges for offshore centers and the Crown Dependencies in particular. This is reflected in the latest rankings, and in the number of onshore city centers moving up the rankings. While this is a remainder of just how competitive the market is for finance centers globally, the fact that Jersey's rating has increased yet again is an indication that is continues to perform well and is still perceived very positively by others in the marketplace."

China Should Broaden Its Tax Base

www.bethelfinance.com/rm
 Stephen Groff, Vice-President of the Asian Development Bank, in a speech at the China Development Forum 2013, declared that the first step for China to take should be to broaden its tax base.
 He noted that greater efforts are needed to address major constraints, despite the fact the China "has undergone significant fiscal reforms in recent years that have helped to build a solid fiscal position."
 Fiscal revenues have increased from less than 10% of GDP in the 1990s to 20% of GDP currently, but Stephen Groff commented that they are still relatively low compared to OECD countries, making it difficult to allocate adequate public resources to basic social services.
 While social spending has increased rapidly in recent years, he said that it too remains relatively low. About 35% of government revenue is spent on social security, education and healthcare, compared with an average of 52% in other middle-income countries. Moreover, recent reforms have focused on expanding the coverage of benefits rather than restructuring the benefits themselves.
 While the Government is piloting some important initiatives, such as the introduction of a property tax on luxury housing in Shanghai and Chongqing, Groff called these taxes " a step in the right direction," but "the ultimate goal must be a genuine property tax based on home values and universally imposed on all urban homes."
Furthermore, he added that the pilot program to introduce a VAT on services in selected cities and sub-sectors has proved highly successful, but the scope of the pilot is restricted to 12 cities and municipalities.
He believed that, while economic growth should be sustained, further fiscal reforms will be necessary to support economic rebalancing and narrow the income gap.
 Firstly, Stephen Groff said that "the tax base should be  broadened. Recent reforms increasing tax thresholds have reduced the number of personal income tax payers to less than 3% of the population. Tax evasion is high, and collection and enforcement are low."
 "More importantly," he pointed out, "the base leaves policy-makers with no powerful income distribution tool. Last year, the share of personal income tax i China's total fiscal revenues reached less than 6%, far below the OECD average of 24%. The income tax base can be broadened through measures to curtail tax evasion, reduce the informal sector in the economy, and strengthen tax administration."
 Secondly, Groff looked for an increase to the progressivity of taxation. Currently, VAT is China's single largest source of tax revenue but is regressive,while more direct taxation could be more effective in adjusting income differences, and therefore be more equitable.Taxing capital gains and property, introducing inheritance/gift taxes and an environment tax, would also help to balance income distribution.
 Thirdly, he considered it essential that there should be an overhaul to be tax revenue sharing system between the central and local governments. One approach, Groff recommended would be to increase existing transfers of fiscal resources from the central government and the share of VAT revenue accruing to local governments to ensure sufficient funds for an adequate provision of social services at the local level. "Without such reforms'" he concluded, "large disparities in public social spending per person will emerge, and perpetuate inequality."

Puerto Rico Creates Tax Shelters in Appeal to the Rich

www.bethelfinance.com

 Puerto Rico is known for its white-sand beaches and killer rums , and hopes to stake a new claim: tax haven for the wealthy.
Since the beginning of the year, Puerto Rico has gone on a campaign to promote tax incentives that took effect last year, marketing its beautiful beaches, private schools and bargain costs in an effort to lure well-heeled hedge fund managers and business executives to its shores.
 So far, Puerto Rico’s pitch has attracted a handful of under-the-radar millionaires. Several American executives of mostly smaller financial firms say they have already relocated to the island, and Puerto Rican officials say another 40 persons, mostly from the United States, have applied.
 The tax savings could add up to “at least in the six figures” each year, said Barry Breeman, an American who said he was moving to Puerto Rico with his wife. Mr. Breeman is the co-founder of the New York-based Caribbean Property Group, a real estate investment firm that has substantial holdings on the island.
 Millionaires are nice, but Puerto Rican officials hope to reel in billionaires like John A. Paulson, the hedge fund manager who Bloomberg News reported earlier this month was weighing a move.
The attention prompted an unusual statement from Mr. Paulson, which declared that he was not relocating. (Still, Mr. Paulson, a 57-year-old New Yorker, had briefly considered a move, say two people with knowledge of his plans.)
 If not Mr. Paulson, government officials and real estate brokers in Puerto Rico hope to sell other wealthy mainland Americans on what they hope will become the next Singapore or Ireland as a favored low-tax destination. Puerto Rico is closer and, compared with Ireland, decidedly warmer. And unlike in Switzerland or other havens, in Puerto Rico, Americans do not give up their citizenship.
 “There’s nothing wrong with spending 183 days a year on a sailboat or yacht and working from here,” said Alberto Bacó Bagué, the secretary of economic development and commerce for the island, in a telephone interview. “We’re catching up to Ireland and Singapore — you can shelter income legally, and legally in a good way.”
 Puerto Rico is a commonwealth of the United States, but for tax purposes, it is treated differently. Most residents of the island, with the exception of federal employees, already pay no federal income tax. A person needs to live 183 days a year on the island to become a legal resident.
 The new tax breaks are a twist on the island’s tradition of using tax perks to bolster the economy. Puerto Rico’s per-capita income is around $15,200, half that of Mississippi, the poorest state in the nation. In 2006, a previous incentive exempting United States companies from paying taxes on profits from Puerto Rican manufacturing ended after Congress said that the incentive had bilked taxpayers.
 The new tax breaks are a radical shift in that they focus on financial, legal and other services, not manufacturing. Puerto Rico slashed taxes on interest and dividends to zero from 33 percent, and it lowered taxes on capital gains, a major source of income for hedge fund managers, to zero to 10 percent.
 The incentives work with existing United States breaks. While residents still have to file a federal tax return, they do not have to pay capital gains taxes of 15 percent on assets held before moving and sold after 10 years of island residency.
 The new tax incentives “likely will be considered more broadly by some taxpayers as a new opportunity for income shifting and tax deferral,” declared Michael Pfeifer, an international tax lawyer at the law firm Caplin Drysdale in Washington.
Mr. Bacó, the Puerto Rican economic development official, is planning a road show on the East Coast next month to woo financial and law firms as well as wealthy individuals to moving to Puerto Rico.
 Because of its new aggressive tax breaks, the island is a supercharged version of Florida, which does not tax individuals on ordinary income.
Recently, a business development group in Palm Beach, Fla., wined and dined 10 executives from the Northeast who had flown in for a two-day tour showcasing the state’s tax advantages, complete with golf outings, showings of oceanfront office space and a soiree aboard a yacht.

 Florida has already landed one big fish: Edward S. Lampert of ESL Investments moved his headquarters from Greenwich, Conn., to near Miami last year.

The sales pitches by Florida and Puerto Rico tap into a growing resentment among affluent people who feel that they have been vilified by politicians or believe they have unfairly become targets for disproportionately higher taxes. In one highly publicized example, the actor Gérard Depardieu, angry over a plan by the French government to raise taxes to 75 percent for the wealthy, accepted a Russian passport from President Vladimir V. Putin. Russia has a flat tax rate of 13 percent.

But a move to Puerto Rico may be easier said than done. Privately, some lawyers and accountants in the United States express concern that individuals who move to the American island for its lower taxes might appear “unpatriotic” in a widening crackdown by authorities on offshore tax dodging through Switzerland, Israel and Singapore.

And while the island’s tax breaks are legal, some investors say they do not want their hedge fund managers straying too far from their mainland office.

“Citi Private Bank expects hedge fund principals to be in a primary office with their critical employees close by,” David Bailin, the global head of managed investments for the firm, wrote in an e-mail.

Puerto Rico has been battered by several years of recession. Its unemployment rate is more than 13 percent, well above the national rate, and its economy remains mired. In December, Moody’s Investors Services downgraded the island’s debt to one notch above junk status; and in a recent research note, Breckenridge Capital Advisors said the island was “flirting with insolvency.” The island has the weakest pension fund in America and by some estimates could run out of money as soon as 2014.

An influx of wealthy financiers would provide a much-needed lift to the economy.

Margaret Pena Juvelier is a real estate broker with Sotheby’s International Realty who left the Upper East Side last fall to open an office in San Juan. “We’re getting an average of 10 to 15 calls or e-mails a day from people who want to look at homes,” she said.

Ms. Juvelier often sends a black S.U.V. with a driver in a suit and tie to meet clients, some of whom fly in on private jets and pepper her with questions like “is there aWhole Foods here?” and “if I get really sick, do I have to be medevaced?”

Nicholas Prouty of the investment fund Valivian Advisors, who is moving to San Juan from Greenwich, Conn., said he wanted “the excitement of having new experiences coupled with the worry of the unknown.”

While the real estate broker Ana González Brunet declines to name names, saying “discretion to billionaires is important,” she said multiple individuals had recently looked at the 8,379-square-foot penthouse in the Acquamarina in the chic Condado neighborhood of San Juan. The $5 million condo has underground parking and a panoramic view of the ocean through floor-to-ceiling windows, and is near luxury boutiques like Cartier, Salvatore Ferragamo and Louis Vuitton.

“It’s like being in the best part of Manhattan,” Ms. González Brunet said.

 

               

Yachts Lured To Croatia By EU Accession VAT Perk

www.bethelfinance.com/rm

 Yacht owners who are yet to pay European Union value-added tax (VAT) on the purchase of their yachts, and who wish to put their boats into free circulation in the EU, have been encouraged to temporarily register their vessels in Croatia to take advantage of a concessionary VAT rate being introduced ahead of the nation's entry into the European Union on July 1, 2013.
 Under EU law, yachts that have been purchased in the EU are subject to VAT , at varying rates permitted by the European Union. Once VAT has been paid on a yacht it may be transferred from one EU member state to another free from incurring any additional VAT, as with other goods that travel across EU frontiers.
 Croatia is set to join the European Union from July 1, 2013, and Croatian yacht owners, under the rules, will be required to pay VAT on their vessels to establish them as EU goods. Croatian yacht owners may opt to instead relocate their boats to another EU member state ahead of the nation's accession and pay VAT there instead.
 The Croatian Government has recognized that if it were to attempt to levy a 25% VAT on Croatia-based yachts it would lead many owners to pre-emptively relocate their vessels, either to member states with lower VAT rates, such as Italy and Malta, or to territories outside to the European Union to avoid the tax burden. Therefore, the Croatian Government has announced plans to allow a concessionary 5% VAT rate for those persons that register and relocate their vessels to Croatia before May 31, 2013, until after the nation has joined the European Union at the earliest. Vessel owners looking to avail themselves of the concession have been urged to act fast as the process of registering a boat in Croatia can take several weeks, and the offer will be withdrawn on June 1, 2013.

Cyprus economy 'on the brink', Bank of Cyprus warns

www.bethelfinance.com

 The Cypriot economy is "on the brink" and desperately requires a liquidity lifeline from Europe, Cyprus' largest bank has warned.

The Bank of Cyprus said: " The next move may prove its salvation or destruction" - itself said to require urgent funding to prevent collapse.
 The European Central Bank has given the island nation until Monday to raise the funds it needs to secure a bailout.
MPs have delayed a vote on a new plan to raise those funds until Friday.
Earlier this week they flatly rejected a plan to tax bank deposits.
They need to find 5,8 bn Euros to quality  for a 10 bn- euro bailout loan from the European Union and International Monetary Fund.
 President Nicos Anastasiades has discussed with political leaders about the options, and the package was then discussed by the cabinet. But MPs said they needed more time to study the nine bills that make up the draft legislation.
 If no "Plan B" can be found by Monday , the ECB may cut off funding to the island's banks, it said in a statement, triggering their collapse and possibly the country's exit from the euro.
 After holding a phone conference on Thursday night to discuss the situation, eurozone finance ministers said they stood " ready to discuss with the Cypriot authorities a draft new proposal"', which they expected " the Cyprus authorities to present as rapidly as possible".
 It is now a race against time to approve the proposals by Monday, says the BBS's Mark Lowen in Nicosia, and anxiety is growing as the country - and the eurozone - enter a critical few days.

" Doomed"

 Bank of Cyprus and Laiki ( two biggest banks in Cypru ), are believed to be reliant on the ECB's Emergency Liquidity Assistance, provided via the Central Bank of Cyprus.
All Cypriot banks have beeen shut until next Tuesday to prevent mass withdrawals, but long lines have been forming at cash machines.
They are still dispensing cash but with such demand are frequently running out, and on Thursday Laiki radically  lowered the daily withdrawal limit to 260 euros.
 " There are rumours that Laiki Bank will never open again. I want to take out as much as I can", retired government official Phaedon Vassiliades told AFP news agency as he withdrew cash at a machine in the capital, Nicosia.
 " I have nearly 60,000 euros as savings in this bank and some credit societies. I don't know if I will ever get it back now. This is what I had and now it seems it is all gone".
Neophytos Constantinides said : " We are doomed. Our sunny days are over".
State broadcaster CyBC said employees of Laiki - The country's second largest bank - were told on Thursday afternoon the bank would be closing down, but on state radio a Laiki  spokeswoman denied those reports.
 On Thursday there were reports that the government was considering the restructuring of Laiki Bank in to "good" and "bad" banks. Bank employees clashed with police as they protested over possible lay-offs.
Earlier crowds gathered outside parliament in anticipation of a vote on a new proposal - a key component of which is the establishment of a state " investment solidarity fund" which would issue bonds on state assets to raise the 5,8 bn euros required.
 Other elements of Plan B could include restructuring other Cypriot banks, use of pension funds, and accepting an offer of help from Cyprus' wealthy Orthodox  Church.
 A revised levy on deposits also remains a possibility.
It might also contain some kind of Russian help. Cypriot Finance Minister Michael Sarris is in Moscow discussing possible assistance.
big Russian investors are believed to hold about a third of all Cypriot deposits - and reacted with fury when the initial plan to tax deposits by up to 9,9%.
But the chairman of the Eurogroup of eurozone finance ministers, Jeroen Dijsselbloem, told the European parliament that Moscow had indicated it was not willing to extend " another loan or an investment in the banks", Reuters reported.
Reports suggest Moscow could consider buying interests in recently discovered offshore gas reserves.
 But analysts point out that any revenue from such discoveries remains years off, and unnamed Turkish officials have been quoted as saying Ankara - which lays claim to some of the gas - would challenge any such arrangement.
 The banking sector dominates Cyprus' economy and if a viable rescue is not organised soon the island state risks having to abandon the euro.
 Cypriot banks were among the bondholders who had to take a big "haircut" in the second massive bailout for Greece.
 Since 2008 the eurozone has been badly bruised by the massive bailouts provided for Greece, the Republic of Ireland and Portugal. There is a widespread reluctance to commit more EU taxpayers' money to ailing banks in southern Europe.