China Joins The FATCA Ride; Introduces Own Version

Published on 30 Sep, 2015

China & FATCA

Having signed an IGA with the US, China has decided to go one step ahead by taxing citizens living and working abroad, as part of a crackdown on tax evasion by individuals and companies. China has had its own version of FATCA since 1993, when it had undertaken an in-depth study of the US tax system. Currently, China imposes tax on citizens irrespective of the country they reside in. Under China’s tax regime, citizens and entities are required to pay tax on their worldwide income, not just on what is earned in China. This tax policy was introduced as more Chinese are heading overseas to earn money.

China has been gearing up for the implementation of FATCA. In January 2015, the Guangzhou government summoned executives from 150 of the largest corporations based in the region to a meeting to discuss tax obligations of their overseas employees. Also, the governments in Beijing and other big cities are contacting major firms in their jurisdictions and requesting for detailed information on foreign employees’ incomes. The State Administration of Taxation in Beijing has launched a separate campaign to curb tax evasion by Chinese companies as they begin to make large overseas investments.

Read: Aranca’s Special Report on FATCA – High Cost Initiative to Curb Tax Evasion

With these rules, effective February 1, 2015, various international investments deemed tax shelters have been banned. The rules are expected to indirectly affect many wealthy Chinese individuals who invest overseas through specially created companies, often located in the Caribbean.

The Chinese version of FATCA, targeted mainly at wealthy citizens who stash money away in Hong Kong and other tax havens, is expected to ruffle feathers worldwide. Some firms may discontinue providing services to Chinese clients.

Maseco, a wealth management firm catering to US and French expats, had to address many client concerns over FATCA. Co-founder James Sellon believes, “There will be a lot of screaming voices concerning the Chinese regulation. The unintended consequence is the cost to the average Chinese citizen living and working in a local jurisdiction who suddenly has to spend more time and effort considering their personal investments and taxation. They have to file two tax returns: a domestic plus a home country one. That adds to the complexity, time, and uncertainty. That also adds to an increase in professional service and accountancy practices to account for this.”

* This write-up is an excerpt from the Aranca Special Report: FATCA – High Cost Initiative to Curb Tax Evasion.
You can find that and more at Aranca's Knowledge Center.