Germany is no longer the most popular destination for commercial real estate investment, according to BrickVest’s latest commercial property investment barometer. Formerly the most popular location in Q3 2017, Germany has now fallen in favour among investors behind the UK, US and France.

Germany saw a drop in popularity from 34% to 23% in the last quarter, marking its lowest rating since Q2 2016. The UK, however, rose from 27% to 29% in Q4 2017, managing to sustain its favourability by consistently ranking above 25%.

Both the US and France have also gained popularity with investors, with nearly one in five (19%) preferring the US over other regions and 18% now selecting France as their location of choice (up 4% since Q2 2016).

The Barometer also revealed that the hunt for income ranked highest (38%) as the primary investment objective of BrickVest investors this past quarter. This has risen by 6% from 32% in Q3 2017.

Notably, interest in secondary cities as target markets continues to steadily increase (from 37% in Q3 2017 to 41% by the end of 2017). These include Birmingham, Newcastle, Bristol etc.)

Emmanuel Lumineau, CEO at BrickVest, commented: “Our latest Barometer reveals that Germany is no longer the favoured destination for commercial real estate investment, contrary to its position in Q3 2017. Rather, the UK has once again become the most popular region for our investors.”

“There have been similar changes in other aspects of the data, including the greater emphasis placed on the hunt for income and the growing popularity of secondary cities as target markets. As the year progresses and we continue to conduct our Barometer, it will be interesting to see how the industry adapts to these underlying factors affecting the real estate market.”

(Source: BrickVest)

This new year, there is one question on the lips of business men and women around the UK: “Is now the best time to purchase commercial property?” Thus, commercial property experts, Savoystewart.co.uk, have analysed how the market faired in 2017, and whether 2018 is the ‘peak time’ to buy.

The latest Property Data Report shows that since 2000, the value of the UK’s commercial property stock has grown, considerably, at an average of 3% each year – surprisingly, more than RPI inflation, which grows at an average rate of 2.8%.

Whilst exploring the report, Savoy Stewart found that the commercial property market in the UK in 2016 was valued at a staggering £883 billion, representing 10% of the UK’s net wealth. Investors now own £486 billion worth of commercial property in the UK; with overseas investors owning 29%.

In central London alone, around £2.4 billion was invested in commercial property, resulting in the total turnover for the end of July reaching a substantial £11.5 billion – a 24% increase on the same point a year earlier, in 2016.

July was the strongest month recorded for the City of London since March 2007, owing to the sale of the “Walkie Talkie” building – the UK’s largest single office building deal – which accounted for a staggering 61% of turnover.

Is now the best time to purchase commercial property?

2017 was a much stronger year than many ever anticipated. The economy pleasantly surprised many businesses and forecasters, with unemployment falling to the lowest level since 1975, consumer spending robust, and occupier take-up healthy.

According to Knight Frank, London office take-up is on the rise, despite the impact of Brexit, with demand in the West End at its highest for more than a decade. Savoy Stewart concluded, from their analysis of the research, that the third quarter of 2017 recorded the highest level of office take-up.

A substantial 3.8 million square feet of office space in central London was under offer and was due to close by the end of the year – and it is predicted to be the strongest final quarter since 2014. Office take-up in the West End alone reached 1.65 million square feet.

Trends in 2018

The uncertainty over the UK’s relationship with the EU will continue to cast a shadow over economic growth throughout 2018, resulting in a more cautious outlook amongst investors across all commercial property sectors. As a result, activity may be subdued, but it doesn’t

mean investment will stop any time soon, as investment volumes in the UK commercial property market, this year, are expected to total around £55 billion, per a report by JLL.

Savoy Stewart considered Savills ‘Sector Outlook’ and summarised the six main trends for commercial property in 2018:

1. Non-domestic demand for UK commercial property to remain strong; Due to the weakening of the pound and commercial property yields looking high in comparison to prime European and Asian markets.
2. Now is the best time to add value, and for opportunistic investors; Less competition and falling prices means now is the best opportunity to value-add and for opportunistic investors looking to change short-term income into long-term.
3. Real earnings growth will improve for the retail market; In 2017, a perfect storm of negativity hit retail, but this year will better news. Watch out for good buys in some segments of the commercial property market – don’t just buy because it’s cheap.
4. Brexit: It will become clearer how much, where and when the risks will be. London’s office market shrugged off the worst of the pre-Brexit negativity last year; 2018 will see more balance.
5. 2018 will be the year of ‘alternatives’; The pace of recovery will be dictated predominantly by Brexit; investors this year will be exploring new opportunities in the market.
6. New-tech tools, such as AI, will emerge; Wellness and staff satisfaction will continue to be important for employers, but some businesses will start to look at offsetting the costs of delivering wellness by using artificial intelligence.

Managing Director of Savoystewart.co.uk, Darren Best, discusses his view on commercial property investment in 2018: “As the figures show, despite the uncertainty around Brexit, London is still a pre-eminent city and performing better than Europe in some sectors. The research suggests that now is the best time to purchase commercial property in the UK, now that business confidence is more stable than many expected, which speaks volumes.”

He added: “The performance of the market, last year, surprised many of us. Occupiers are continuing to commit to London commercial property to satisfy their needs, and with the increase in foreign investment in UK commercial property over the last decade and overseas investors now owning 29% of UK commercial properties, it is safe to say 2018 isn’t going to be all doom and gloom – there will be scope for optimism too.”

CNBC's Scott Wapner recaps his conversation with legendary investor Carl Icahn on the market volatility and where he sees the market going from here.

“Strong global market sentiment for risky assets, a weakened dollar and geopolitical turmoil in the Middle East underline the need for a long-term multi-asset portfolio”, asserts a leading global analyst at one of the world’s largest international advisory organisations.

deVere Group’s International Investment Strategist Tom Elliot, is weighing in after the IMF upgraded its estimate of global GDP growth this year to 3.9%.

Mr Elliot comments: “We have seen an unusually strong start to the year for risk assets, as global investors appear confident that a period of non-inflationary, globally synchronised economic growth is underway.

“Equities and non-core bond markets have benefited from strong inflows in recent weeks, with a slow creep upwards in core government bond yields doing little to deter enthusiasm for risk.

“The MSCI World index of developed market shares is up 7.0% since the start of January, and up 5.5% in local currency terms. The Japanese economy grew at an annual rate of 1.4% in the third quarter 2017, despite a shrinking population. And the MSCI Emerging Market index is up 9.9% since January.

Mr Elliot details three major theories that are on offer for these developments: “Firstly, the ECB and the Bank of Japan look likely to end their quantitative easing programs earlier than had been anticipated, so bringing forward the date when those central banks might also start to raise interest rates.

“Secondly, Trump’s tax cuts announced in December are worth an estimated $1.5tr over the next five years, at a time when the labour market is already tight. This raises fears of wage inflation pushing up CPI inflation.

“And thirdly, a suspicion by many FX traders that the Trump administration wants a weaker dollar as a deliberate tool for narrowing the trade deficit, to be used alongside more overtly protectionist policies. Trump denied this while in Davos on Thursday, calling for a strong dollar… ‘ultimately’.”

Mr Elliot underlines how Sterling’s strength has contributed to a return on the MSCI U.K. index of -0.2%, as dollar-earning FTSE100 heavyweights have come under pressure, and to a return on the MSCI World index in sterling terms of just 2.0%.

He goes on to say that Trump’s ‘Make America Great Again’ policy poses only a modest attack on free trade, and that it should be contextualised.

Mr Elliot states: “Bush raised tariffs on European steel imports early in his first term, and massively expanded agricultural subsidies. The sky did not fall down. We must hope that Trump’s attacks on free trade remain relatively specific and do not become broad in scope.” At the same time, Central bank policy errors remain “a key risk to capital markets”, asserts Elliot.

He says: “Anything that produces a sudden rise in core government bond yields, or cash rates, are a threat to stock markets and high yield bonds.”

“Meanwhile, geopolitical turmoil in the Middle East should be observed closely”, says deVere’s top analyst.

Mr Elliot comments: “The Middle East is developing new themes that one needs to keep an eye on, partly because of the ongoing risk of a regional clash, but also due to the young populations who are less conservative and less inclined to tolerate the status quo.”

He concludes: “As such, I strongly advise a multi-asset portfolio for the long term to offset financial volatility, centred around 60% global equities and 40% global bonds.

“Such funds predicated on this principle are available in spades and differ according to the level of risk for suitable investors, who more often than not, value certain returns over high-risk gambles.”

(Source: deVere Group)

The euphoric rally of US stock markets is sustainable through 2018, forecasts a leading global analyst at deVere Group.

Tom Elliot, deVere Group’s International Investment Strategist, is speaking after America’s leading market indices - the Dow, S&P, and Nasdaq - finished at a record high following the end of the government shutdown.

Mr Elliott comments: “There’s been almost continual chatter in recent weeks on Wall Street and beyond about the current melt-up, before a forthcoming meltdown. It supposes that we’re experiencing the last euphoric rally in an asset class bull market, before the collapse.

“Whilst, it’s true that Wall Street is the most overvalued of the major stock markets, I am sceptical about an imminent collapse. Where would it be coming from? The only real risk is that bank account rates or bond yields rise sufficiently to persuade investors to sell shares and invest in risk-free assets.

“But with the inflation so low and the Fed being so cautious, I don’t see that happening any time soon. Another trigger for a sell-off might be a US recession. But again, no evidence of one around the corner.”

He continues: “US stock markets are likely to be supported by continuing strong corporate earnings growth, limiting any pull-back in share prices. The weak dollar boosts export earnings, while strong consumer confidence supports domestic-focused sectors.

“Tax cuts will be a net benefit to US corporate earnings, but the impact of changes to the tax code on individual sectors is as yet unpredictable. Fourth quarter earnings statements and outlook comments being reported shortly will hopefully offer clues.”

Mr Elliott concludes: “Against this backdrop, I believe that the current rally is sustainable through 2018, with the worst scenario perhaps being a strong early part of the year, followed by consolidation -with minimal gains- over the rest of the year.”

(Source: deVere Group)

Many are fearful of investing, many already did it, others are on the fence as to whether it’s still worth it. Nicholas Gregory, founder and CEO of London-based cryptocurrency enabler CommerceBlock, here provides Finance Monthly with some insight as to whether you’ve missed the boat or not at this point.

The chatter surrounding Bitcoin investments has reached fever pitch in the new year, and the higher its value rises, the louder it gets.

But how do you time an investment in a market like this, and is it worth it?

A massive stumbling block for would-be investors is the fact that nobody inside the industry truly understands how valuable Bitcoin really is. Fair value is difficult to pinpoint, and the market has been gyrating wildly as record high after record high has bowed to the cryptocurrency’s seemingly unstoppable rise.

Meanwhile skeptics continue to question whether Bitcoin has any value at all.

Warren Buffett of Berkshire Hathaway famously called Bitcoin a “mirage” back in 2014, and his criticism still echoes today. This is largely because regulation in many jurisdictions is yet to catch up.

Putting the intrinsic value of Bitcoin aside for a moment, the appeal of cryptocurrency largely depends on whether or not the investor expects other people to want to take it off them at a later date.

If people think Bitcoin has value, then it does. This faith - that it is a store of value and means of exchange - is what has underpinned traditional Fiat currencies ever since stone money was created in Micronesia. Those ‘coins’, which could be so large they weren’t even moved, were also a store of value solely because a community of people agreed they should be.

This same dynamic can lead potential investors to grow nervous over the future value of Bitcoin but, as history shows, it’s nothing new.

I, and my colleagues at CommerceBlock, help companies do business in Bitcoin. So if it’s true that Bitcoin is worthless, then we are in serious trouble.

What makes me more certain than ever that we have a future, is the same excitement that is driving the headlines. Bitcoin promises to be a currency not anchored to the old guard, not beholden to bankers, lawyers, high fees and costly international settlements. It’s a no-brainer for businesses who can accept huge payments from the other side of the world in minutes.

So what impact does this have on the value of Bitcoin? Well, anyone who has observed the astronomical growth in its valuation over the course of 2017 will know that its price has been volatile, to say the least. At the start of the year it was at around $800, before more than doubling to $2,000 in May. Then, in August, it broke the $4,000 mark for the first time. As I write this, Bitcoin is worth over $16,600 just four months later.

However, it’s a leap of faith to chase a market that has risen so dramatically. At the same time, I am one of those who believe bitcoin will be worth $100,000 one day. It’s either that or it will be worth nothing at all.

This is only my opinion. But even if I’m right, I can’t tell you how long that will take or what bumps we will encounter along the way.

In investing, you can be right in the long run, but still lose money. It is best summed up by a retort to famed hedge fund manager Michael Burry, played by Christian Bale, in the film The Big Short, as he defends his decision to short the housing market.

Burry tells a disgruntled colleague: “I may have been early, but I'm not wrong.”

Then comes the reply: “It’s the same thing.”

Investors now have little alternative but to support risk assets if they want to beat inflation, affirms one of the world’s largest independent financial advisory organisations.

The assertion from Tom Elliott, International Investment Strategist at deVere Group, comes as global stock markets enter 2018 with positive momentum, including the Dow Jones which has surpassed 25,000 for the first time in history.

Mr Elliott explains: “Market confidence is supported by a reasonably strong cyclical upswing in world GDP growth. This is being translated into corporate earnings growth, by a belief that central banks will not significantly tighten monetary policy unless justified by growth and inflation data, and by the U.S. corporate tax cuts announced in December which will boost Wall Street corporate earnings.

“In the face of continuing low interest rates and bond yields, investors now have little alternative but to support risk assets such as equities and non-core government bonds, if they want a yield that will beat inflation.”

An acronym is currently being popularised that describes how many investors see markets unfolding in 2018: MOTS, standing for ‘more of the same’. That is to say, solid returns for stock markets with continuing low volatility, and positive returns from investment grade corporate bonds.

“The risks to the MOTS scenario include central bank policy error, Trump turning America away from its traditional support for free trade, a credit crunch in the Chinese financial system and from geopolitics such as North Korea and the Middle East. However, as supporters of MOTS would argue, none of these risks are particularly new and they failed to de-rail markets in 2017,” confirms the strategist.

He continues: “We favour a long-term multi-asset approach to investing, whereby investors choose a suitable combination of global equities and bonds - depending on their risk profile and investment horizon - and leave the portfolio unchanged. Regular re-balancing ensures winners are sold and losers are bought – which financial history, and common sense, supports but which is so hard for us to do in practice.”

Mr Elliott goes on to say: “Looking forward to 2018, Japanese and emerging market stock markets appear to some commentators to offer most value, the U.S. less so. The Japanese economy, which grew at an annualised rate of 1.4% in the third quarter 2017 (despite a shrinking population), continues to benefit from a weak yen and the upturn in global demand for its exports. Fiscal reform, in particular lower corporate tax rates for companies that increase wages by 3% or more, comes into effect in April. It is hoped that this will lead to improvements in household demand growth, which has been weak in recent years. Emerging market equities continue to look undervalued relative to their developed market peers on most valuation measures, despite their outperformance in 2017.

“Wall Street is the most overvalued of the major stock markets, with the attractiveness of equities against bonds diminishing as Treasury yields creep up. However, the increase in yields is likely to be modest and U.S. corporate earnings growth will remain strong, limiting any pull-back in share prices. The weak dollar boosts export earnings, while strong consumer confidence supports domestic-focused sectors. Tax cuts will be a net benefit to U.S. corporate earnings, but the impact of changes to the tax code on individual sectors is as yet unpredictable. Fourth quarter earnings statements and outlook comments, from mid-January, will hopefully offer clues.”

Mr Elliott is not so confident about fixed income. He concludes: “Once again we begin the year with commentators generally nervous of bonds, fearing that an inflation problem is around the corner. Some fear that central banks will tighten monetary policy faster than is priced into the market in an accelerated effort to ‘normalise’ policy.

“It seems prudent to heed such warnings, even while acknowledging that the fear of imminent inflation has been voiced by monetarist hawks – and proved wrong- ever since central bank’s policies of quantitative easing and ultra-low interest rates began nearly 10 years ago. This suggests favouring short duration core government bonds, since the cash can be re-invested in a few years in higher bond yields.”

(Source: deVere Group)

Creditsafe Group, the global business intelligence expert, has found that despite a significant investment from Lord Alan Sugar, past winners of the show still have a relatively low net worth and poor credit rating.

Over the last five years the winners net worth, credit score and credit limit have decreased on average by 73%, with credit scores falling from 87 to 64 and credit limits reduced from £46,000 to £2,000, according to Creditsafe data.

Analysing the figures on its database, Creditsafe discovered that none of the winning candidates in the last five years have doubled the £250,000 investment made by Lord Sugar, with the most recent winner Alana Spencer’s net economic position valued at just £7,538 with a £2,000 credit limit. In comparison, the 2012 winner, Richard Martin has a £325,789 net worth and a £46,000 credit limit.

In addition, businesses of past Apprentice winners appear to have prospered once the candidate had stepped aside. Alresford founded by Tom Pellereau (2011 winner), Aston Rowant in which Lee Mcqueen (2008 winner) was a director and London Contemporary Orchestra Limited where Simon Ambrose (2007 winner) was a director, saw a significant uplift in credit score and credit limit when the Apprentice winners stepped away. For example, Tom Pellereau resigned on 15/12/2011 from Alresford when the credit score was 43 and the credit limit was £500, the business now has a credit score of 80 and a credit limit of £1,000.

David Walters, Head of Content & Technology at Creditsafe UK & Ireland, said: “There is a misconception that once a candidate wins the Apprentice, they will have immediate success in business. We can see from the data that this isn’t always the case. While the past five winners are all profitable, there is no evidence to suggest the partnership with Lord Sugar provides any further financial security past the initial investment. It will be interesting to see who wins on Sunday night and how they perform in comparison to the previous winners over the next few years.”

The Apprentice is currently being aired on BBC and is in its thirteenth series. This week Lord Sugar, in a surprising turn of events, chose both finalists, Sarah Lynn and James White, as winners. A first in the TV show’s history.

*Average across all active businesses.

(Source: CreditSafe)

More than three quarters (77%) of commercial banks are preparing to increase fintech investment over the next three years as the rapidly growing sector shows no sign of slowing, with 86% of senior managers expecting an imminent rise in investment.

The in-depth research commissioned by Fraedom, polled 100 decision-makers in commercial banks including shareholders, middle managers and senior managers.

The survey also discovered that more than seven out of 10 (71%) respondents believe the rise of technology within commercial banks threatens traditional one-to-one banking and customer relationships. This was felt strongest among 95% of shareholders, as opposed to 67% of middle managers.

Kyle Ferguson, CEO, Fraedom, said: “The research reflects what is an upward curve for fintech organisations and to continue this trend it’s important for commercial banks to make the right choice when working with a fintech provider. By working with a trusted partner that understands the challenges of local markets, and equally how digitisation of commercial banks can support financial service offerings, this choice can often lead to further investment in the fintech industry.”

The research also revealed that despite an overall feeling that the future of the fintech sector is exceptionally bright, nearly two thirds (63%) of respondents believe commercial banks are more cautious than retail banks when it comes to adopting new technologies.

In addition, it was discovered that the most common reason for commercial banks lagging behind its retail counterpart was that ‘the market was settled and there was no strong competition from newcomers until now’. This was supported by 37% of respondents that felt retail banks surpassed commercial banking in the uptake of technologies.

“The commercial banking sector must become less cautious in embracing new technologies, especially when fintech firms can support areas of their service by outsourcing operations such as commercial cards,” adds Ferguson. “When technology is embraced at a faster pace, the gap between commercial and retail banks will become smaller and the collaboration between banks and fintech providers will help drive the future of finance, benefitting consumers, businesses and of course the industry as a whole.”

(Source: Fraedom)

Bitcoin reached another new milestone today as it briefly traded above $17,000 (£14,809) before dropping $2,500 down to $14,500, sparking both fear and interest for investors alike.

This comes after the online currency reached $10,000 just over a week ago.

The Cryptocurrency’s meteoric rise in the tail end of 2017 began earlier this year in March 2017 when a single Bitcoin reached the value of $1200. Since then, it has been gaining traction and breaking record after record.

The 70% surge has largely been aided by demand in China, where people use it to channel money out of the country. It has been further aided by Bitcoin’s introduction to the Chicago-based Cboe Futures exchange and its impending launch on the CME futures market, which will allow investors to bet on the future price of the currency, and give it a form of regulation that has not been present thus far, something that has held back a series of big investors.

Despite this climb, critics fear that Bitcoin’s rise is creating an inevitable economic bubble, similar to the Dotcom rise and subsequent crash that saw the end of many companies and stock reductions of up to 86% in others. Others, however, believe that the rise can simply be attributed to Bitcoin reaching the financial mainstream.

Even with its current rise, Bitcoin is still very much an unknown quantity leaving plenty of room for scepticism. Added in to that is the fact that roughly 1000 people own 40% of the Bitcoin market, which has created an environment where traditional investors have been tentative.

As it stands, people can speculate but no one knows which way Bitcoin is going to go. However, given that buying one Bitcoin last night and selling it 5 minutes later would have made you around $3000, makes it understandable that some are likening the continuing climb of Bitcoin to a “charging train with no brakes”.

What is Bitcoin?

Bitcoin was introduced back in 2009 by an unknown individual going by the name of Satoshi Nakamoto in the aftermath of the global banking collapse.

Cryptocurrencies are not a form of physical money, rather they’re a digital currency created by computer code and worldwide the total in existence amounts to £112 billion.

There is no middle man involved in transactions either, eliminating any fees that usually occur. Anyone can go online and purchase Bitcoin, whether that’s a single Bitcoin, a number of Bitcoins or even a percentage of a single Bitcoin.

What do you think about this sudden surge? Do you think now is a good time to invest in the cryptocurrency? Or do you feel this is just a passing craze that will soon die down? Leave your answers in the comments below!

Bitcoin has since its inception, and especially during its 2017 growth spurt, become a bit of a culture, a religion almost. If you’ve heard about bitcoin from somehow, they likely sounded really passionate about it and excited to explain it to you. Below Fiona Cincotta, Senior Market Analyst at City Index, talks Finance Monthly through the bitcoin investment craze.

In 2009 when the bitcoin was invented, very few people thought it was worth a second thought. In June of 2009, a bitcoin was worth $0.0001. Even a year ago no one was really taking about bitcoin. It was a virtual currency that existed for those that were technologically advanced enough to understand it.

As humans, the feeling that we have been left behind or the feeling of missing out, is not one we relish. In many cases this is magnified when money is involved. Conversely, the feeling that we have jumped onboard the right ship is something we love to shout about, something that more and more bitcoin investors are doing. As the price of bitcoin continues to rise, the interest that followers pay to the virtual currency and the hype surrounding it grows exponentially. As the price goes up, so does the hype.

Bitcoin reached a staggering new all-time high on 20th November as the virtual currency broke through $8000 level for the first time, not just the first record high, but the third or fourth record high within so many weeks. Several new developments surrounding bitcoin have aided it’s 48% rally from $5500 just one week earlier.

Whilst the link between the rising price and growing following of bitcoin is indisputable, several recent developments have also increased its legitimacy. Firstly, CME Group plans to offer bitcoin futures from December 10th. Futures are a mechanism of agreeing to buy or sell an asset at a future date and the contracts can be used as a method of speculating on the assets price movement over time. CME’s support for the currency is giving it a legitimacy in the financial world that up until now it appeared to be lacking.

The move by the CME will also put more pressure on the big investment banks to join the party. So far, Goldman Sachs has suggested it could be open to the idea of a bitcoin desk, whilst JPMoragan have also expressed an interest in opening a bitcoin desk to serve clients’ needs. But could more legitimacy just encourage bitcoin followers to continue talking up what is starting to look like this generation’s dotcome bubble. Is the bitcoin a great example of investor enthusiasm driving to fever pitch, before it crashes?

Yet, the bitcoin religion is not just about an apparently phenomenal investment. To some of those involved, bitcoin is the future of money. It is not unheard of for bitcoin enthusiasts to compare where the bitcoin is now, to where the internet was in the 1990’s. One bitcoin investor said “bitcoin is one of the most important inventions of humanity. For the first time ever, anyone can send or receive money, with anyone, anywhere on the planet, conveniently and without restriction. It’s the dawn of a better free world.” Another claims that mankind “has never really owned their own money, it’s always been owned by their rulers. Bitcoin gives the ability for people to actually own their own money.” Here we can see that to some the bitcoin religion goes far beyond the investment itself and is the cusp of a social revolution.

Social revolution, new religion, or not, focusing on the bitcoin rather misses the point. More attention should be switched towards the blockchain, the technology behind the bitcoin. Whilst the technology is complicate the idea is simple, Blockchain technology enables us to sends money directly and safely from me to you, without going through a bank, paypal or credit card company. Blockchain technology has the potential to bring with it widespread change. Whilst JP Morgan CEO Dimon, called bitcoin a fraud, his bank has been using underlying blockchain technology to develop new processes. Blockchain technology is still some way off going mainstream, in fact the bitcoin bubble may have even popped before blockchain goes mainstream. Rather than the internet of information, the blockchain (rather than the bitcoin) could be the internet of value.

Your experience encompasses assisting companies with growing their businesses – what attracted you to this area of specialism? How rewarding is this?  

With China’s economic development and growth over the last 20 years, more and more foreign companies have been expanding their businesses into China, either through direct investment or through increasing numbers of cross-border transactions. However, doing business in China has distinctive challenges that must be considered, not only because of the potential language barriers, but also because of various business-related regulations and tax requirements that are unique to the country.

Our consultants at Nexia TS (Shanghai) Ltd provide business and tax advisory services to global clients investing in and/or doing business in China. Our service offerings range from planning, structuring and the setting up of foreign-invested businesses, as well as a focus on tax consulting and advisory for all aspects of Chinese taxation. Chinese company and employment law advisory services are also offered. We are able to provide compliance work that caters to assurance and other statutory needs.

Since we established our practice in China in 2001, we have assisted many international companies with their inbound investments into China, setting up direct presence and fulfilling the domestic regulations. Overall, we find that our experience and expertise with the Chinese regulations and business environment have also benefitted our clients.

How should foreign companies structure their business operations to be as tax efficient as possible when considering expansion into China?

In our experience, we have found that the simplest structures are often the best. It is potentially useful for foreign parent companies to own their Chinese subsidiaries through offshore holding companies in low tax jurisdictions that also had favorable tax treaties in place with China. In many cases, multinational groups use layers of holding companies in their structures. Related party transactions between sister companies and the ultimate parent company were essentially designed to extract profits out of Chinese operations without being taxed. Things have changed since 2008 though, and China has implemented many new regulations intended to ensure that the country receives its fair share of taxes. Where a foreign company sets up and registers a subsidiary in China, it is now usually most tax efficient when the subsidiary autonomously performs its business functions. The more control the China subsidiary has over its operations, the better - especially with respect to participation in the VAT system. Furthermore, more autonomy from the parent company generally results in fewer issues with respect to expense deductibility for corporate income taxes. It is true that profits dividends paid to the subsidiary shareholders are taxed at 10%, or less in some cases, but there is tax savings over attempting to extract profits through royalties or cross-border services that are subject to both withholding tax and VAT. Foreign companies operating in China nowadays must take these issues under consideration.

For foreign companies operating in China without setting up a registered entity, there are also tax-related considerations. It is important to properly structure these transactions. For those that simply sell goods into China, the buyer of the goods handles all of the China-related issues. However, for those that sell services, or a combination of goods and services, into China, it is crucial to minimize the risks associated with being recognized as permanent establishment for corporate income tax purposes, and also to ensure that tax treaty benefits are applied to and recognized by the respective tax authorities. Likewise, VAT now applies to all cross-border service transactions, so proper structuring of the service agreements is essential.

What potential pitfalls face foreign companies who wish to set up a Chinese operation - in terms of staying compliant with regulation whilst wishing to operate under a tax efficient structure? What are the potential consequences of non-compliance?

Many foreign investors assume that setting up an entity in China that relies heavily on related party transactions may be very simple when using special purpose entities. For example, a US company might set up a holding company in Hong Kong, to take advantage of lower withholding tax rates on royalties obtained by selling IP usage rights to its China subsidiary. However, China has closed many loopholes with tax officials scrutinising royalty and other similar agreements. If certain criterias are not met, the royalty payments may not be deductible for the China subsidiary.

Another area often overlooked is how China’s tax rules have changed with respect to the indirect equity transfer of Chinese entities by offshore parties. Considerable paperwork must now be filed in China during such transactions, even if no tax will be assessed on the transfer. Penalties can be quite severe if the offshore transferer and transferee do not comply with the documentation filing requirements.

Since the introduction of the Corporate Income Tax Law in 2008, China’s State Administration of Taxation has implemented many new General Tax Anti-Avoidance Rules that allow the country to pursue foreign companies doing business in China and purposefully setting up the businesses or transactions to avoid Chinese taxation. With the advent of BEPS and increasing global cooperation between countries, it has become much easier for China to pursue such cases.

What tax incentives are in place for foreign companies who may want to establish business operations in China?

Companies within certain specific industries can enjoy corporate income tax breaks, and these industries are normally associated with high-tech manufacturing and R&D. In addition, Chinese local municipal governments attempt to attract foreign investments by offering tax exemption or tax rebates on the portions of VAT or corporate income taxes to which they are entitled. There are also incentives for companies investung in energy-saving and environmental protection facilities, which they can deduct a certain amount of their investments for corporate income tax purposes.

How can multinational companies move finances in an efficient way between their international offices?

Foreign companies with regional headquarters in China’s free trade zones have a few options for moving funds between China and other countries. However, China generally has strict foreign exchange rules in place that limit the movement of funds via profit dividends, loans, or other genuine transactions between the parties. Capital usually cannot be moved out of the country without closing and liquidating the business in China. Companies should plan exit strategies at the time of business setup. However, regulations are always subject to change, so such strategies should be analyzed continuously and updated as needed.

What are your thoughts on China’s One Belt One Road initiative? What’s been the impact of the concept on commodity demand thus far?

Unveiled in October 2013, the One Belt One Road initiative is a development framework aimed at enhancing trade and investment connections between Central and Eastern European countries and Asian countries. It not only plays a role as an important economic link between countries, that also helps to relieve some of the issues that were caused by China’s economic development during recent years, such as overcapacity, falling demand for commodities like steel, investment bubbles, lower rates of return on investment and so forth. The key to success of this initiative also depends on joint participation from other countries to bring in high technology to increase the rate of return on investments, instead of just building roads and bridges and ports, which are the key strengths of China in leading this initiative. The collaborative stance that China places on this initiative is very helpful. For example, it acts like entrepreneurs who would like to set up business with existing infrastructures and available financing.

According to the futures prices on steel and copper traded on the Shanghai Futures Exchange, the dominant Futures prices on steel and copper have been rising since 2016, which means that demand for domestic commodities has been gradually recovering. With more deals and projects announced in the future, we foresee that the demand for domestic commodities will continue to rise further.

What do you think the future impact of the initiative will be?

This initiative in the long run will benefit the global economy as a whole, and help rebuild economic interactions between countries that were in existence before the 2008 economic crisis. It not only increases the routes by which transported goods can reach destination countries around Asia and Europe, but also revitalizes the economies and unlocks potential demand from the One Belt One Road countries.

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