Tax rise may lead to fewer US expatriates
Firms may have to reconsider hiring Americans
Firms hiring Americans to work in Hong Kong may have to rethink their recruitment strategies in view of impending tax increases on US citizens working overseas.
Under the Tax Increase Prevention and Reconciliation Act of 2005, which US President George W. Bush is expected to ratify in the next few days, expatriate Americans will be taxed on a greater portion of their housing benefits compared to the current cap of US$12,000 a year.
The existing exclusion of US$80,000 a year from tax will also be indexed for inflation.
However, as companies usually pay US income taxes for their expatriate American staff, the increased cost of business may force employers to look elsewhere for talent or to restructure their expatriate compensation packages.
Jack Maisano, president of the American Chamber of Commerce, said the move was disastrous for American exports, and a blow to US competitiveness.
He said the US Congress did not understand that giving Americans less incentive to work abroad would make them less inclined to buy American products.
The chamber is organising a letter campaign to lobby the US government against the move.
Anne Shih Mee-yee, deputy managing partner of tax consultancy Deloitte Touche Tohmatsu's international assignment services group, said there could be possible knock-on effects, including property rental cuts and an impact on the local school system if families returned to the US.
'The proposed tax changes will impact on Hong Kong particularly because of the high housing costs here,' she said, adding that the Internal Revenue Service was hiring more than 100 staff to focus on auditing the accounts of expatiate Americans.
Vincent Gauthier, general manager of human resources firm Hewitt Associates in Hong Kong, said that over the long term companies would continue to hire Americans regardless of the tax changes.
There are between 50,000 and 55,000 Americans living in Hong Kong.
