Guide To Financial Transaction Taxes For Secondary Interest Transfers In Alternative Investment Funds Worldwide
Secondary Private Equity Market Commentary
by Laurence G. Allen
NYPPEX, one of the world’s leading providers of secondary private equity liquidity and price data, today announced its Guide to Financial Transaction Taxes for Secondary Interest Transfers in Alternative Investment Funds Worldwide (the “Guide”).
NYPPEX believes this is an opportune time to introduce its Guide as governments increasingly seek to impose higher financial transaction taxes on sellers, buyers and/or funds to pay for social programs or budget shortfalls due to declines in tax revenue caused by COVID-19 and citizens emigrating to other jurisdictions.
The Guide focuses on countries which have active investors and/or sponsors of alternative investment funds, which include all strategies such as buyout, venture, real estate, fund of funds, natural resources, infrastructure, distressed debt and hedge.
NYPPEX believes financial transaction taxes cause wider bid and ask price spreads, lower investment returns (that would adversely impact retirement and other accounts) and reduced secondary market liquidity for securities including interests in alternative investment funds.
NYPPEX estimates that since 1694, financial transaction taxes have been periodically used by governments for reasons including to curb excessive speculation in the financial markets.
In 2020, NYPPEX estimates financial transaction taxes were utilized by over 40 countries.
In general, financial transaction tax formulas differ significantly among countries.
Regarding the potential impact of financial transaction taxes to alternative investors and sponsors of alternative investment funds, the table below illustrates alternative investor’s significant allocations to alternative investment funds as a percentage of their total portfolios for the period 2018 to 2020.
Given that alternative investment funds comprised approximately 18% to 26% of portfolios in 2020 according to Ernst and Young, NYPPEX believes financial transaction taxes could have a significant adverse impact on alternative investment funds and their investors.
Currently, there are 4 primary types of financial transaction taxes that may affect transactions in stocks, bonds or other financial contracts such as options, derivatives and secondary interest transfers in alternative investment funds.
Below Are 4 Types Of Financial Transaction Taxes.
Financial Transaction Tax (“FTT”)… A tax on the sale or purchase of stocks, bonds, options, financial contracts or secondary interests in alternative investment funds.
Securities Transaction Tax (“STT”)… A tax on the total purchase price paid on transfers of stocks, bonds, options, financial contracts or secondary interests in alternative investment funds, imposed at the time of transfer.
Stamp Duty Tax… A tax on documents needed to legally record certain events such as marriage, transfers of property and secondary interests in alternative investment funds.
Transfer Tax… A tax typically charged by a local jurisdiction on the transfer of ownership of an asset such as property and secondary interests in alternative investment funds.
Below Are Financial Transaction Tax Highlights In Countries With Active Investors Or Sponsors Of Alternative Investment Funds.
Australia ………………………………No Financial Transaction Tax.
Belgium………………………………..Transfer Tax of 0.12% to 1.32% up to €4,000 tax on each applicable transfer.
Bermuda………………………………No Financial Transaction Tax.
Brazil…………………………………. Financial Transaction Tax of up to 1.5% on each applicable financial transaction.
British Virgin Islands……………….. Stamp Duty Tax based on status of the transferee and up to 4% for “Belongers” and 12% for “Non-Belongers” on each applicable transfer.
Canada……………………………….. No Financial Transaction Tax Cayman Islands…………………… .No Financial Transaction Tax
China………………………………… Stamp Duty Tax of 0.1% to sellers on each applicable financial transaction.
Cyprus……………………………….. Stamp Duty Tax of 0.15% up to €20,000 tax on each applicable transfer.
Denmark……………………………… No Financial Transaction Tax.
European Union……………………. Financial Transaction Tax on each participating country member which may set their own rates above a minimum of 0.01% to 0.10% on applicable financial transactions (proposed law).
Egypt………………………………… Stamp Duty Tax of 0.175% on each applicable financial transaction.
Finland………………………………. Financial Transaction Tax of 1.6% on each applicable financial transaction.
France………………………………. Financial Transaction Tax of 0.3% on each applicable financial transaction.
Germany……………………………. Financial Transaction Tax of 0.2% on each applicable transaction (draft law).
Hong Kong…………………………. Stamp Duty Tax of 0.1% to sellers on each applicable financial transaction.
India…………………………………. Securities Transaction Tax of 0.001% to 0.05% on each applicable financial transaction.
Ireland………………………………. Stamp Duty Tax of 1.00% of consideration paid on each applicable financial transaction.
Israel………………………………… No Financial Transaction Tax.
Italy………………………………….. Financial Transaction Tax of 0.02% to 0.20% on each applicable financial transaction (draft law).
Japan………………………………… No Financial Transaction Tax.
Kuwait……………………………….. Transfer Tax of 1% to seller based on profits on each applicable financial transaction.
Luxembourg………………………… No Financial Transaction Tax.
Mexico……………………………….. No Financial Transaction Tax.
Norway………………………………. No Financial Transaction Tax.
Panama……………………………… Securities Transfer Tax to sellers based on profits up to 10% on each applicable financial transaction.
Poland……………………………….. Transfer Tax of 1.00% on the sale of each applicable financial transaction.
Qatar…………………………………. No Financial Transaction Tax.
Russia………………………………… No Financial Transaction Tax.
Saudi Arabia………………………… No Financial Transaction Tax.
Singapore………………………….…. Stamp Duty Tax of 0.2% on each applicable financial transaction.
South Africa…………………………. Securities Transaction Tax of 0.25% on each applicable financial transaction.
South Korea………………………….. Securities Transaction Tax of 0.15% to 0.50% on each applicable financial transaction.
Spain………………………………….. Financial Transaction Tax of 0.2% on each applicable financial transaction (draft law).
Sweden……………………………….. No Financial Transaction Tax.
Switzerland………………………………. Securities Transaction Tax of 0.15% to 0.30% on each applicable financial transaction based on gross proceeds.
Taiwan…………………………….………. Securities Transaction Tax of 0.1% on each applicable financial transaction.
Thailand…………………………………… Stamp Duty Tax of 0.1% on each applicable financial transaction.
Turkey……………………………………. No Financial Transaction Tax.
United Arab Emirates…………………… No Financial Transaction Tax.
United Kingdom…………………………. Stamp Duty Tax of 0.5% to 1.5% on each applicable financial transaction.
United States……………………………… Financial Transaction Tax of 0.0042% on each round of a futures transaction. Tax of 0.1% to 0.5% on each applicable financial transaction (proposed law).
In general, the party accountable for reporting and paying the financial transaction tax is the alternative investment fund, which is passed on to the seller and/or buyer.
With its Guide, NYPPEX seeks to provide qualified investors and fund sponsors worldwide with a better understanding of financial transaction tax laws in various countries to make good decisions when divesting, purchasing or permitting secondary interest transfers in alternative investment funds.
Sources: The Tax Foundation. United States.
European Commission. Belgium.
Brookings Institution. United States.
Cato Institute. United States.
Inter-American Center of Tax Administrations for Latin America Countries. Panama.
About NYPPEX Holdings NYPPEX Holdings operates a global private marketplace that provides price data, liquidity and related services for qualified investors and sponsors of alternative investment funds in a fair and ethical manner. Its clients include alternative investment funds, financial institutions, endowments, foundations, institutional investors, government sponsored enterprises, family offices, private clients and their respective advisors worldwide.
Since 2004, the NYPPEX QMS™ has been formerly recognized by the U.S. Internal Revenue Service as a Qualified Matching Service for private partnerships though a private letter ruling under Internal Revenue Code §1.7704.
Its private securities are privately offered to qualified investors through NYPPEX, LLC and only in jurisdictions were permitted. NYPPEX is regulated in the U.S. by the SEC and FINRA. Member FINRA, SPIC. Copyright 2021 NYPPEX Holdings, LLC. All rights reserved.
Risk Disclosure: The information contained in the Guide is market commentary by NYPPEX. NYPPEX provides its Guide for informational purposes only. The Guide is incomplete, relies on information from 3 rd parties and such information may be incorrect or change at any time without notice or update to the Guide. For current and complete financial transaction tax information, please consult with tax professionals on the tax laws in each country and jurisdiction.
Private placements are illiquid, speculative and investors may lose their entire investment.
For more information, please visit www.nyppex.com or contact inquiries@nyppex.com or by phone at +1 (914) 305-2825.
This commentary is for informational purposes only and only for the addressee specified, which we understand to be a Qualified Purchaser and holder of private equity fund assets. It does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security which may only be done through an issuer’s offering documents and in jurisdictions where permissible. Nothing contained in this email or subsequent document constitutes investment advice or offers any opinion with respect to the suitability of any security. The views expressed on this email and subsequent documents should not be taken as advice to buy, s ell or hold any security. In preparing the information contained in this invitation, we have not taken into account the investment needs, objectives and financial circumstances of any particular investor. This information has no regard to the specific investment objectives , financial situation and particular needs of any specific recipient of this information and investments discussed may not be suitable for all investors. Any views expressed on this invitation or subsequent report by NYPPEX were prepared based upon the information available to NYPPEX at the time such views were written. Changed or additional information could cause such views to change. All information is subject to possible correction. Information may quickly become unreliable for various reasons, including changes in market conditions or economic circumstances.
