China’s new reporting offshore asset reporting requirements affect individuals residing in the country for more than a year, and corporations registered in China.
Because it does not oblige foreign institutions to report to China on their Chinese account-holders, China's new new “Foreign Asset Reporting Requirements” (FARRs) resemble America's so-called Foreign Bank Account Reports rules, or FBARs, which oblige US citizens throughout the world to report to the US tax authorities on any account they have outside the US which contains assets of $10,000 or more at any point during the calendar year. The FBAR requirements have been around for years, although enforcement has increased since around 2010.
FATCA, or the Foreign Account Tax Compliance Act, obliges foreign financial institutions to report back to the US authorities as well on their American account-holders, and is due to come fully into force on 1 July.
For now, according to Vistra, which examines the new FARRs in a recent update to clients on its website, the data being asked for by the Chinese authorities is said to be intended for use by Beijing just “for the purposes of statistical analysis of ‘international receipts and payments’, for the benefit of the state”.
“[But] it remains unclear whether the collected data will be shared with other departments, such as the tax administration [department], at a later stage,” said Thun Lee, managing director of Vistra Shanghai.
It is thought that the new asset reporting requirements could provide a vehicle for China to increase taxes on foreign assets, which, in turn, might encourage wealthy and better-educated Chinese to leave China.
Failure to comply with the new reporting requirements will result in fines of up to RMB300,000 (£29,889) ($49,100) for institutions and companies, and RMB50,000 for individual cases, Thun Lee said.
Took effect on 1 January
The Foreign Asset Reporting Requirements came into effect on 1 January, and are thought to have been intended to prevent or discourage the offshoring of assets.
The State Administration for Foreign Exchange (SAFE) announced the revised measures for reporting statistics on international receipts and payments, which were first published in 1995.
According to Vistra, the three key amendments announced by SAFE are: a wider definition of what must be reported; a wider definition of who is liable to report; and new confidentiality and data protocols.
“Until now, Chinese residents have only been required to report international economic transactions with non-residents,” Thun Lee said.
“[But] from 1 January, residents [are] required to report their foreign financial assets and liabilities, and all cross-border transactions.”
Included in the definition of “PRC residents” who must meet the new requirements, according to Vistra, are:
• individuals residing in China for more than one year
• PRC passport holders who have been absent from the country for less than one year
• Corporations that are incorporated in the PRC
• Non-residents who perform economic transactions within the PRC
• Representative offices or branches of such foreign institutions as banks
Based in Geneva, Vistra is one of the world’s largest independent providers of trust, fiduciary, corporate and fund services, employing some 500 people in 30 offices around the world. It is a part of the OV Group, which also includes Asia-based Offshore Incorporations, and which employs a total of some 800 people.
To read the Vistra client update on its website, click here.
