Cutting ties with US could be expensive
Three newly appointed undersecretaries are facing difficult decisions about how much they should sacrifice to prove their commitment to Hong Kong, but for Kitty Poon Kit, the cost could be far higher than she imagined.
After the announcement by Greg So Kam-leung, undersecretary for commerce and economic development, on Thursday that he would give up his Canadian passport, three other undersecretaries - Dr Poon, Julia Leung Fung-yee and Gabriel Leung - revealed that they too had to decide whether to surrender citizenships in foreign countries, while another, Raymond Tam Chi-yuen, revealed that he had already applied to do so.
Dr Poon, undersecretary for the environment, may be faced with a particularly taxing decision, since she is a citizen of the United States, where a new 'exit tax' for people who renounce their citizenship is expected to be introduced very soon.
According to US tax lawyer Kurt Rademacher, a partner at Withers Hong Kong, the US Senate passed the law unanimously on May 22 and it is awaiting the approval of President George W. Bush.
In any case, the tax will automatically come into effect 10 days after it arrives on the president's desk, provided he does not veto it.
Fergus Tong, the managing director of US Asia Tax & Business Services, said: 'Before, it may have been an easy decision, but now, you will have to think very carefully. The taxes triggered could be quite significant.'
According to the anticipated law, citizens with a net worth of US$2 million, or those who still owe past US taxes, will be taxed when they apply to renounce their citizenship. The tax will apply to the net unrealised gain on the expatriate's assets, as though such assets were property sold for their fair market value on the day before the expatriation date.
Mr Rademacher warned that although the US$2 million requirement may seem large at first, the state will take into account all hard assets, such as real estate, investment portfolios, retirement funds, and interest in trusts.
Furthermore, Fernando Cheung Chiu-hung, a social-welfare lawmaker who gave up his US passport to run in Legislative Council elections in 2004, warned that the process would not be simple, since officials had to make sure applicants did not give up citizenship under duress.
Dr Poon could not immediately be reached for comment yesterday.
She spent seven years in the US from 1989 onwards to acquire citizenship. Upon returning to Hong Kong, she applied for a Hong Kong passport after the handover.
A spokesman for the US consulate said the country's laws did not mention dual nationality, nor require a person to choose one citizenship over another.
'Individuals wishing to renounce their US nationality may do so by making a formal renunciation before a diplomatic or consular officer of the United States,' he said.