Home  Contact Us
  Follow Us On:
 
Search:
Advertising Advertising Free Newsletter Free E-Newsletter
Magazine
  
      2017       2016       2015       2014       2013       2012       2011       2010       2009       2008

FINANCE: How does China CRS impact high net worth individuals
Share to

How does China CRS impact high net worth individuals
By Kelvin Lee, PwC Tianjin


近日,税务总局联合财政部和"一行三会"共同签发了正式版的《非居民金融账户涉税信息尽职调查管理办法》,标志着全球范围内金融账户涉税信息自动交换的"统一报告标准"(CRS))在中国正式落地。该《管理办法》要求在境内设立的金融机构于今年7月1日起开展对存量以及新开金融账户的尽职调查工作,以识别非居民金融账户,收集并报送账户相关信息。这也意味着作为非税收居民个人,在CRS参与国家或地区境内的金融机构,持有或控制的金融账户的涉税信息,将被定期自动交换回该个人税收居民所在国家或地区的税务当局。


鉴于高净值客户在全球的产业布局多样性以及在各国居留时长的复杂性,其税收居民身份的判断通常也更为复杂。我们建议寻求专业税务意见以准确填报自己的税收居民身份。高净值客户应根据自身金融资产所在地的具体规定,谨慎填写金融机构提供的自我认证表格。另外,高净值客户需及早审视与完善自身及名下资产的全球税务合规,避免潜在税务风险,并及时作出调整。


BT 201708 FINANCE 03In brief


Recently, the State Administration of Taxation (SAT), the Ministry of Finance and the "one bank and three commissions" 1 jointly issued the Administrative Measures on Due Diligence Procedures for Non-residents' Financial Account Information in Tax Matters (the Measures), which earmarks the official implementation in China of the Common Reporting Standards (CRS) relating to the global automatic exchange of financial account information.


The Measures require financial institutions established in China to carry out due diligence procedures on preexisting and new financial accounts starting from July 1, 2017 (specifically, financial institutions should complete due diligence procedures on high value and low value preexisting individual financial accounts 2 before December 31, 2017 and December 31, 2018, respectively) to identify financial accounts held by non-residents, collect and submit relevant account information. Earlier, China has committed to be the 2rd batch of jurisdictions to implement CRS and will complete the first round of automatic exchange of financial account information by September 2018. In the meantime, the Measures require the account holders (including individuals and entities) to provide relevant information to the financial institutions truly, timely, accurately and completely. Such information includes the tax residency of the account holder or the relevant controlling person.

BT 201708 FINANCE 01
In detail


What is the impact of CRS?


CRS requires participating jurisdictions to implement a uniform reporting standard for their financial institutions, and commence information exchange with the other CRS participating jurisdictions on the financial accounts information collected on their residents within the committed time period, with the aim to achieve automatic exchange of tax information so as to deter and combat tax evasion by taxpayers using offshore accounts.


Currently, 100 jurisdictions have committed to implement CRS, of which 50 (including BVI and Cayman) have committed to exchange the first round of information by September 2017, and the rest (including China, Hong Kong and Singapore3) committed to exchange the first round of information by September 2018.


In other words, under CRS, if an individual holds or controls financial accounts in financial institutions in CRS participating jurisdictions and such individual is not a tax resident of that participating jurisdiction, the relevant information in respect of these financial accounts would be automatically exchanged to the tax authority(ies) in the jurisdiction(s) where that individual is a tax resident.


What is the impact of the Measures?


The promulgation of the Measures provides formal legal basis and administrative guidelines for the implementation of CRS in China, which indicates that China is ready to exchange information with other CRS participating jurisdictions.


As the next step, China will gradually establish information exchange relationships with other CRS participating jurisdictions to exchange information either multilaterally or bilaterally. Specifically, the 100 CRS participating jurisdictions mentioned above can achieve information exchange with other CRS participating jurisdictions using either multilateral or bilateral approaches.


Most jurisdictions (such as China) that use multilateral approach are required to sign both the Convention on Mutual Administrative Assistance in Tax Matters (Multilateral Convention) and the Competent Authority Agreement. If the CRS participating jurisdictions of the Multilateral Convention have intentions to collaborate, they can establish partner relationship to achieve information exchange. China has indicated that she is willing to establish information exchange partner relationship with as many jurisdictions as possible. With those jurisdictions which use the bilateral approach (such as Hong Kong), China would have to sign separate bilateral competent authority agreements with each of them to establish partner relationship to achieve information exchange.


Who will be impacted by CRS?


There are two groups of people that may be impacted by CRS: non-China tax residents who hold or control financial accounts within China where tax-related information of these financial accounts would be exchanged with the CRS participating jurisdiction(s) where they are tax residents according to the Measures; and China tax residents who hold or control financial accounts in CRS participating jurisdictions where tax-related information of these financial accounts would be exchanged with China according to the local CRS rules of those jurisdictions. These people may include, but not limited to:

1) Foreign individuals from CRS participating jurisdictions, who work in China and hold financial accounts in China;


2) Overseas Chinese who are residents of CRS participating jurisdictions other than China and hold financial accounts in China;


3) Chinese individuals who hold financial accounts in CRS participating jurisdictions other than China;


4) Chinese individuals who hold more than 25% of the shares of a company which has financial accounts in CRS participating jurisdictions other than China;


5) Chinese individuals who hold shares of listed companies through securities companies in CRS participating jurisdictions other than China;


6) Chinese individuals who hold cash value insurance contract or annuity contract issued by CRS participating jurisdictions other than China;


7) Chinese individuals who are settlors, trustees, beneficiaries of a trust or who have ultimately effective control over a trust established in CRS participating jurisdictions other than China.

BT 201708 FINANCE 02
The takeaway


We suggest high net worth individuals to go through the following steps to analyse the potential CRS implications to them and take proactive actions:


1. Accurate determination of tax resident status


Holding a passport or permanent residency in a jurisdiction does not necessarily mean that the individual is a tax resident of that jurisdiction or only a tax resident of that jurisdiction. The definition of tax resident varies from jurisdiction to jurisdiction, and usually involves comprehensively technical analysis qualitatively (e.g., factors such as, the family of the individual, centre of economic interests, etc.) and quantitatively (such as the number of days of the individual reside in that jurisdiction).


Given that high net worth individuals have assets and investments globally and may stay in different jurisdictions throughout the year, it could be complicated for these high net worth individuals to accurately determine their tax resident status. They are recommended to seek professional tax advice to accurately report their residency status. The OECD official website has provided the definition of tax resident of all the CRS participating jurisdictions for the reference of taxpayers and financial institutions 4.


2. Detailed sorting of overseas financial accounts


Based on the above determination, high net worth individuals are suggested to sort out the financial accounts which they held or controlled in financial institutions in CRS participating jurisdictions where they are not tax resident to determine the CRS reporting requirement according to local CRS rules of that jurisdictions. According to the Measures, reportable financial institutions include depository institutions, custodial institutions, investment entities, specified insurance companies and their branches as defined. Specifically, financial institutions include not only banks, but also securities companies, futures companies, securities investment funds or private equity funds, insurance companies with cash value insurance contract or annuity contract, insurance asset management companies, trust companies and other eligible institutions.


High net worth individuals should carefully fill in the self-certification form provided by financial institutions according to the local CRS rules of jurisdictions where the financial accounts are located.


3. Overall assessment of potential tax risks associated with overseas assets


Although the tax authorities of each CRS participating jurisdiction is still exploring how to effectively use the exchanged tax information of overseas financial accounts held or controlled by their tax residents under CRS, we believe an ever-improving tax administration system based on information transparency will become a reality soon.


In light of this, high net worth individuals should review and improve the tax compliance status of their global assets as soon as possible. They are recommended to seek professional tax advice to identify any potential tax and compliance risks and make timely correction or adjustment.


---END---

 

    Subscription    |     Advertising    |     Contact Us    |
Address: Magnetic Plaza, Building A4, 6th Floor, Binshui Xi Dao.
Nankai District. 300381 TIANJIN. PR CHINA
Tel: +86 22 23917700
E-mail: webmaster@businesstianjin.com
Copyright 2017 BusinessTianjin.com. All rights reserved.