As the domestic implementation of CRS enters its second half, a large number of offshore accounts are being urged by banks to close!
China's CRS Implementation Timeline
What exactly is the Chinese version of CRS?
China will collect and submit account information of foreign tax residents in China to their respective home country's tax authorities; conversely, foreign tax departments will also provide information on the accounts of Chinese tax residents held abroad to Chinese tax authorities. This means that Chinese tax authorities can learn from foreign financial institutions exactly how many assets Chinese citizens have overseas and how much money they have deposited in banks!
In a nutshell, all your overseas financial account information will be disclosed to Chinese tax authorities.
Numerous banks are accelerating the clearing of offshore accounts
Recently, many friends have reported that while banks are strictly scrutinizing overseas remittances, several banks including SPD Bank, Ping An Bank, China Merchants Bank, and Bank of Communications have begun to accelerate the clearing of offshore accounts.
For example:
1. Mr. Q has been in the foreign trade business for over a decade. He has always used the Industrial and Commercial Bank of China (ICBC) for transactions. In February 2017, his ICBC offshore account received a USD payment where the shipping origin and the remittance origin were different. As a result, the funds were directly held in suspense by the bank, and he was required to close the account.
2. Mr. J has been a foreign trade SOHO for six years, with a registered Hong Kong offshore company and a domestic offshore account at SPD Bank. Recently, the bank has frequently called to urge him to close the account, stating that if he wishes to retain the offshore account, he must not only link it to an onshore company but also maintain an average daily balance of USD 50,000 and an annual settlement volume of over USD 1,000,000. Mr. J did not want to tie up his liquid capital in the account, so he closed the account he had used for four years.
Why?
Industry insiders state that this is inseparable from the implementation of the Chinese version of the CRS policy!
China's global taxation under CRS has been fully rolled out, and the overseas financial assets of domestic high-net-worth individuals are being rapidly audited.
According to a tax report released by the Organisation for Economic Co-operation and Development (OECD) during the G20 summit, the current progress of CRS is even faster than expected. The first round of information exchange between countries was completed in September this year, involving more than 50 countries, and the remaining countries will conduct their second exchange in 2018.
Currently, a large number of offshore accounts registered in CRS exchange jurisdictions that are not associated with onshore enterprises are being urged by banks to close. If you want to continue to retain your existing account, you must meet the bank's relevant requirements for offshore accounts; otherwise, you cannot escape the fate of having your account closed.
With the implementation of the CRS policy, the threshold for opening offshore accounts in non-CRS jurisdictions will also rise, and after opening an offshore account, it is necessary to operate the account in a legal and compliant manner.
How should Chinese high-net-worth individuals actively respond?
1. Accurately determine your tax residency status
Holding a passport or permanent residency in a country does not equate to becoming, or becoming solely, a tax resident of that country. The definition of a tax resident varies from country to country and usually includes a comprehensive analysis of qualitative factors (such as the taxpayer's family and center of economic interests) and quantitative factors (such as the number of days the taxpayer resides in the country each year).
Given the diversity of global industrial layouts of high-net-worth clients and the complexity of their residency durations in various countries, the determination of their tax residency status is usually more complex. It is recommended to seek professional tax advice to accurately report your tax residency status.
2. Thoroughly organize your overseas financial accounts
Based on the results of the previous step, high-net-worth clients should, according to the specific provisions of the CRS domestic laws of non-resident countries or regions, organize the non-resident financial accounts held or controlled by them at financial institutions in non-resident countries or regions that are subject to CRS reporting.
Taking the "Administrative Measures" as an example, financial institutions required to perform CRS reporting include custodial institutions, depository institutions, investment entities, and specified insurance companies and their branches as defined. Specifically, financial institutions include not only banks but also securities companies, futures companies, securities investment or private equity funds, insurance companies engaged in cash-value insurance or annuity business, insurance asset management companies, trust companies, and other qualified institutions. High-net-worth clients should carefully fill out the self-certification forms provided by financial institutions based on the specific regulations of the location of their financial assets.
3. Comprehensively assess relevant overseas asset tax risks
Although tax authorities in various countries are still in the exploratory stage regarding how to effectively utilize the tax-related information of their own tax residents' overseas financial accounts obtained under CRS, many market participants state that a tax collection and administration system that is continuously improved based on information transparency will soon be realized.
4. How to preserve and increase the value of assets
2018 officially ushered in the era of global taxation under CRS. How to allocate assets to achieve preservation and appreciation is an urgent concern for domestic investors. Investing in overseas real estate, jewelry, art, and other types of non-financial assets; immigrating to suitable tax jurisdictions; and finding assets with lower net value but higher value are all good choices for reasonable risk avoidance.
For investors, to avoid global taxation under CRS, operations must be legal and compliant. Everyone's asset situation is different, and the response methods are also different. You should seek professional institutions to formulate asset optimization plans legally and compliantly based on your own asset situation and needs, protect the privacy of overseas assets, and resolve personal tax risks.
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