Expats are trying to make sense of how the new financial reporting laws in China may affect them.
The Foreign Asset Reporting Requirements (FARR) is aimed at anyone living in China for more than a year and companies registered in the country.
Many expats on consultancy projects are based in China for more than a year – and some have already been stationed there for a year or more when the rules came into force from January 1.
Until this date, only Chinese nationals involved in financial transactions with non-residents had to make a report.
Now, all Chinese citizens plus anyone living in the country for 12 months or more must tell the authorities of full extent of their foreign bank accounts, investments and international financial transactions.
Concerns over data collection
Swiss-based wealth advisers Vistra have drawn attention to the new laws and concerns about how the information collected might be used.
“Many clients may be concerned about how the data collected under this new law will be used,” said a spokesman
“The rules say all government departments and state employees must keep the data confidential. The data is collected top analyse ‘international receipts and payments’ by the government.
“It is unclear whether the data will be shared with the tax authority at a later stage.”
Although the tax rules have come into force, many financial and tax advisers are awaiting better definitions of some of the terms, which they claim are unclear in the government documents.
China does not tax interest or capital gains earned on foreign assets.
Taxing overseas residents
Failing to comply with the rules could result in fines.
FARR is a similar process to the American Foreign Bank Account Reports (FBAR), which requires US taxpayers to disclose information about their foreign bank accounts when filing their tax returns.
While China does not tax overseas interests, the government has indicated that a Foreign Account Tax Compliance Act (FATCA) intergovernmental agreement will be signed with the US to allow the Internal Revenue Service (IRS) to collect financial information on Americans with bank accounts or investments totalling $50,000 in China.
“This law could be the first step in China taxing overseas assets of residents,” said the Vistra spokesman. “The worry is this will provoke a lot of wealthy Chinese to flee abroad to protect their money and investments from taxation.”