The Reasons for Fastest Growing Wealthiest Cities (Bangkok is #19) and Analysis of Taxing Foreign-sourced Income. A Commentary and Furtherance on Henley and Associates' article by Dominick Volek.

Which cities are experiencing the most rapid growth in global wealth? What is the final determination?

This commentary is based on the Henley & Associates determination of the fast growing wealthy cities in the world. It then analyzes, compares and contrasts taxing foreign source income of citizens and businesses individually or doing it to the assets under management of a countries banking system. And also touches on what is and what is not a tax shelter or a tax haven, and it alludes to what the definition of a tax haven is or should be with the conclusion that the simple fact of not taxing foreign source income is not and should not be that definition.

This writing effectively prioritizes key elements, with the two most significant factors being (1) technology and (2) taxation.

The primary determinant of a city's prosperity appears to be its technology sector or its proximity to the technology industry. This characteristic is unlikely to surprise the majority of individuals from various regions globally. If a city accommodates or is near numerous technology companies and establishes advantageous regulations and incentives to attract and retain them, this consequently fosters high-paying employment opportunities and encourages managing shareholders, directors, and executives of these companies to reside in or near the metropolitan area.

This rapidly generates a substantial flood of riches into a city. Cities globally that have transitioned from average to high wealth during the past 20 to 30 years by having a strong technology industry–either within their boundaries or in proximity.

Favorable taxes constitute the second most significant element. Although it may be evident at first, high net worth individuals and ultra-high net worth individuals are unlikely to establish their primary property in jurisdictions with elevated tax rates.

Singapore, the quintessential city-state, has consistently capitalized on this advantage by establishing a favorable tax regime that levies taxes on business profits generated within Singapore while exempting foreign-sourced revenue.

By permitting banks to retain a minor percentage of 0.5-2% of their clients' assets under management, rather than imposing taxes on each individual's foreign-sourced income, not only draws wealth but also represents a significantly more manageable tax strategy to execute.

A county that does not levy taxes on foreign-sourced income does not imply that it does not receive revenue from such income entering its jurisdiction. Rather than pursuing an individual’s or business’s income worldwide to evaluate their total wealth, particularly the wealth they contribute to a city or country, and subsequently determining if it has been taxed by another jurisdiction—thereby warranting a tax credit—this endeavor is a formidable challenge.

Furthermore, tax assessments in this context are frequently erroneous, resulting in the taxation of funds that have already been taxed while simultaneously overlooking funds that have never been taxed by any entity. This thus generates litigation to resolve these matters. (Such places are good environments for tax attorneys to get wealthy).

Most governments that initially disregard foreign-sourced revenue ultimately address it when their banks remit taxes. Banks in these jurisdictions typically charge 1-2% of a client's assets under management (AUM). The government subsequently retrieves a portion of tax from foreign sources when their banks remit tax payments. Essentially, imposing taxes on the assets under management that banks levy on their clients. Is it typically lower total taxation than a country that levies taxes on all foreign-sourced income? Yes, it usually is, but the administration costs are far lower.

The governments that do not tax form sourced income require no extensive bureaucracy with a significant investigative apparatus to scrutinize their residents' wealth, which is invariably objectionable and engenders discord between the populace and the government.

They obtain their taxes via their own banks, which is far more economical, less burdensome, and necessitates minimal bureaucracy. A nation pursuing taxation on all foreign-sourced income of its citizens necessitates a substantial bureaucracy comprising highly educated and costly government lawyers, accountants, actuaries, and similar professionals—positions that command high salaries funded by the government—along with a law enforcement apparatus to initially collect those taxes.

Countries that do not implement the aforementioned measures collect their taxes more swiftly, economically, efficiently, and successfully, with minimal following litigation. Governments that tax foreign sourced income must also compensate attorneys for that litigation. It is an exceedingly costly and inefficient system and ideology for collection.

It also imposes a unified and considerably fairer tax on High Net Worth Individuals (HNWIs) and Ultra High Net Worth Individuals (HHNWIs) compared to other systems. Indeed, they contribute less, yet all contribute a uniform proportion of their wealth, which is evidently sufficient to sustain these nations and municipalities at an elevated standard.

The affluent prefer to avoid the substantial and costly endeavor of hiring attorneys to manage their tax liabilities annually. They derive greater satisfaction from allocating that 1-2% immediately. It is also a more expedient method for a government to fulfill its taxing responsibilities and to collect taxes.

Is the system operable in all locations? I do not believe so. However, it can be effective in numerous locations which are usually characterized by safety, a typically educated and content populace, and excellent social services, among other attributes.

Numerous individuals contend that a jurisdiction—be it a city or a sovereign nation—that does not impose taxes on foreign source income is, by its very nature, a tax shelter or tax haven. This is unequivocally false. I believe that no one would characterize Singapore as a tax haven.

Tax shelters and tax havens undoubtedly exist. The definition does not pertain to whether foreign-sourced income is taxed for every individual and every business.