Italian luxury fashion house Prada has shrunk the size of its highly anticipated Hong Kong share sale as turbulent global markets and a tax hurdle threaten to scare away some investors.

Prada is now looking to raise about $2.3 billion in the Asian financial hub, down from $2.6 billion previously, as the firm chopped its estimated share price range, Dow Jones Newswires reported Thursday, citing an unnamed source.

The Milan-based firm would now sell its shares -- which are scheduled to start trading in Hong Kong next week -- between HK$39.50 and HK$42.25 ($5.06 and $5.41), down from a previous top end price of HK$48 per share, in a likely sign of weaker-than-expected demand.

An option to sell more shares could boost the sale to $2.6 billion, still below Prada's earlier estimate that it might raise $3 billion in all as it looks to tap surging demand for luxury goods in Asia.

At a time of unease in markets around the world some firms have decided to delay or cancel their listings in Hong Kong, the world's number-one IPO market in 2010.

Earlier this month, Australian miner Resourcehouse shelved an IPO originally slated to raise as much as $3.6 billion, citing weak market conditions, while luggage maker Samsonite posted a poor trading debut in Hong Kong Thursday after its shares closed nearly eight percent below their IPO price.

"The Prada IPO has received lukewarm responses from retail investors amid weak market conditions. They are also concerned they may be subject to capital gains tax on gains earned once Prada starts trading," Ben Kwong, associate director of KGI Asia, told Dow Jones.

Although only about 10 percent of Prada's 423.2 million shares were set aside for retail investors, some of Hong Kong's savvy stock buyers may be turned off by Italian tax rules that could shrink their profits.

Hong Kong and Rome don't have a tax treaty in place so shareholders in the city would be on the hook to pay a 12.5 percent Italian capital gains tax, and lose 27 percent of their dividend income in a separate withholding tax.

"So if, for example, their dividend income was $100, only $73 would be remitted to them, because it is regarded as Italian-sourced income," Ayesha Lau, partner in charge of tax at KPMG in Hong Kong, told AFP.

"But how are (Italian tax authorities) going to enforce it? I really don't know the answer to that."

Lau added that Hong Kong investors also faced a cumbersome tax filing process with some documentation only available in Italian.

"This is quite new and quite unique," she said.

The fashion house, which includes the Prada, Miu Miu, Church's and Car Shoe brands and is 95 percent owned by the Prada family and executives, is the latest high-end fashion brand to tap the huge Chinese market, the world's fastest-growing market for luxury goods.

China is forecast to be the world's top buyer of products such as cosmetics, handbags, watches, shoes and clothes by 2015, according to consultancy PriceWaterhouseCoopers.

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