Obama’s Re-Election Triggers China-U.S. Dividend Rush

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Nov. 20 – The U.S. dividend tax rate will rise substantially next year should the “Bush tax cuts” fail to be extended. Since President Barack Obama won the recent U.S. presidential election, there remains a high probability that increased rates of U.S. corporation dividend taxes will kick in.

Some American companies are already rushing to issue dividends to shareholders in this current year – leaving only a short time-frame before 2013 begins. Although the increased dividend taxes have not yet been agreed upon, signs are that they will be, and that the new rates may be as much as double the current U.S. qualified dividend tax rate of 15 percent. The top rate on dividends could climb to 39.6 percent from 15 percent if no action is taken to extend the existing tax cuts.

Other highly probable scenarios include a rise in capital gains taxes, which now top out at 15 percent, and could rise above 20 percent. Most U.S. investment income will also be subject to a 3.8 percent charge to help pay for President Obama’s health care program. The situation has created a rush of businesses wanting to declare dividends before the annual fiscal year ends on December 31, 2012 – something that is possible to do in China as long as audit and subsequent repatriation procedures are quickly acted upon. In China, company dividends can be made at any time – providing an audit has first been completed.

American companies expecting to earn profits and repatriate dividends from their China operations this year are consequently urged to consider the expected dividend tax increases and to hold urgent discussions about whether to repatriate monies back from China earlier than normal, and far earlier than the usual China audit deadline of end of March next year.

It may still be possible to go through a Chinese audit, have monies repatriated, and back home safe in America under the current 15 percent rules before the tax break cuts are dropped.

U.S. corporations wanting advice on expediting this process in China may contact Dezan Shira & Associates for assistance at tax@dezshira.com or contact Jessica Tou at our U.S. liaison office for real-time assistance at usa@dezshira.com.

Tomorrow on China Briefing, we will discuss audit and dividends procedures in China for U.S. companies looking to bring this process forward.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia.

For further details or to contact the firm, please email china@dezshira.com, visit www.dezshira.com, or download the company brochure.

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