Let's create a tax haven (continued).
Hello. I'm Mike, a lawyer living in Hong Kong.
In my last article, I suggested that Okinawa should be turned into a special financial zone in the Caymans, and that Hong Kong should be created as a special zone in the suburbs of Tokyo. Let's dig a little deeper here.
First of all, Okinawa. In fact, Okinawa has been designated as a special economic zone since 2002, and Nago City is already a special financial zone. Other cities in Okinawa have been designated as special logistics zones and special information zones. But none of them have been successful to say the least. In order to benefit from a special zone, you need to become a certified business, but even after almost 20 years, there are only 3 companies certified as a special financial zone (as of 2008). This is despite the fact that the system has been amended many times because it did not work. Why? First of all, let's get this straight.
The purpose of Nago's "special financial zone" is to
Promote the concentration of various industries to revitalize economic and financial activities in Okinawa, with "industries that form the basis of the real economy" and "financial industries" as the two wheels of the car.
The image you have is that we will give you tax breaks so you can build a financial company in Okinawa and create jobs, and we will attract other industries so it will be OK. The image we have is that we will give you a tax break, so you can create jobs by building a financial company in Okinawa, and we will attract other industries, so you will be fine. So, to become a certified business, you need to set up a new company in Okinawa and employ at least 5 employees at all times (it was 20 at first!). employees at all times. If you do this, you will pay 40% less tax (only) for 10 years (only).
I understand the feeling, but to set up a new bank in Okinawa? Hire 5 people from the start and operate in Okinawa? I don't know how many new customers there are for the businesses that are coming to Okinawa. From the customer's point of view, they don't want to deposit money or take out a loan because there is a new bank. It's too much of a hurdle, even though the tax will be slightly lower for 10 years. Moreover, it needs to be approved by the prefectural governor (which was also the prime minister at first). New businesses have to invest a lot of money in the first years, so they can afford to lose money for the first few years, maybe even for 10 years. So even if the tax incentives are only for the first 10 years, there is nothing attractive about it. I understand that you want to create jobs in Okinawa and promote the economy, but you are missing the point.
What is going on in Cayman? Actually, Cayman's original industry is tourism. Just like Okinawa. In a law firm suspense movie called "The Firm" starring Tom Cruise, the beautiful beaches and hotels of Cayman are shown as a resort area. A long time ago, when I was still a novice lawyer, a lawyer from a Cayman law firm came to the law firm where I worked. He showed me a brochure of the firm, and there was a picture of a beach resort with white sand and beautiful sea. "I asked him, "Where is your office? I asked him, "Our office is about 5 minutes away from this beach. And he said, "Yes! I said, "Please hire me! I said, "Please hire me!
Having said that, Cayman's bread and butter is of course the financial services industry. The main difference with the idea of a special zone in Okinawa is that there is no expectation of employment in a Cayman company, or of any business activity in Cayman, and that it is easy for anyone to set up a company in Cayman as long as they follow the rules. There will be no employees in the company set up to create the fund in Cayman, and one or more directors will be appointed, all of whom can be non-Cayman residents. As the business is fund management, all clients and business interests are outside Cayman. In this way, the creation of a fund in Cayman has no impact on employment or business in Cayman. On the other hand, there are a number of peripheral companies, such as law firms, accounting firms and service companies, that can help with the process of setting up a company and managing and operating it once it is established. In fact, the process of setting up and registering a fund is done by a local law firm, and the subsequent management is done by a local company. As a result, local jobs are created in the peripheral service sector. created in the surrounding service sector.
It should be added that Cayman is also home to Cayman Islands Monetary Authority, " CIMA "). In order to properly establish and operate a fund in Cayman In order to establish and operate a fund subject to the supervision of CIMA. It is easy to attract illegitimate funds from all over the world if you are uncontrolled, and sound funds and companies will flee. CIMA exists to avoid this and to allow sound financial institutions from all over the world to come together. By the way, I like the website of CIMA. It is full of the attitude of "Welcome to the world of financial institutions". I don't think it is a bureaucracy. It is not only about taxation, but also about the ability to trade in currencies from all over the world without any forex restrictions, the speed of setting up a fund (just a few days), etc. It is very convenient and stress-free in many ways.
Conclusion. The current Special Zones in Okinawa are designed to attract companies to the island with the aim of creating jobs and promoting the economy, while placing the onus on them to do so, and setting various conditions for employment. As a result, the risks for the companies are high, while the benefits are limited. The benefits are also limited and time-limited. If this is the case, it is not surprising that companies are hesitant to set up in Okinawa. The first step is to remove such conditions and create an environment where funds can be established in Okinawa easily and safely. When I say "special zone", I mean that if a special zone is a system where normal regulations are "temporarily" removed to allow for the introduction of industry, then Okinawa should not be a special zone but a permanent system. That way, job creation and economic promotion will follow. Why don't we take a thorough look at the Cayman system and create a copy of it? I think it is a good idea. If Okinawa becomes the Cayman of Asia, with no time difference and convenience, Asian funds will be set up in Okinawa, and jobs and the economy will be stimulated without even thinking about it. There is no time to waste. Hong Kong has already started.
See you next time.
