On May 19th, 2017, several Chinese agencies, including the Central Bank and the Ministry of Finance, announced new requirements for all financial accounts.
The new requirements will take effect July 1st, though institutions will have one year to make all existing accounts compliant. Once these regulations go into effect, all deposit-taking institutions, policy banks, investment agencies, and insurers must make sure all financial accounts have the following information:
- Account Balances
- Revenue flows
This is in accordance with China’s commitments under The Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which China signed in 2015. The OECD and Council of Europe developed the convention to facilitate the international exchange of information relating to taxes. Consequently, it is easier for states to jointly battle corruption.
Why did China do this?
By signing this treaty and imposing these new regulations, China hopes to achieve two goals. Domestically, to target foreign individuals and institutions with assets in China. Because of these new regulations, it will be easier for Chinese regulators to monitor financial accounts and identify tax evasion.
Internationally, it will aid the Ministry of Public Security’s “Fox Hunt” campaign. This campaign pursues corrupt officials and economic criminals who have stashed their cash overseas. With 109 signatory countries, this will undoubtedly strengthen the campaign. However, since the US is not a signatory state, and won’t be anytime soon, the convention’s long-term effectiveness is uncertain.
How does this affect you?
The names, addresses, account balances, and revenue flows of your financial accounts can be shared between any signatory state. Signatory States can request this information, along with any past tax records, as far back as 15 years. While you may be fully tax-compliant now, if you made any inadvertent tax filing mistakes over this period, you could be a target. Make sure to check if any country you pay taxes in is a signatory.
As we mentioned in previous articles, by sharing additional information, you may open yourself up to tax risks. If you are worried about any ambiguities in your current tax status, ECOVIS can help you double check your tax status. Please feel free to reach out to us in the coming weeks before these new regulations go into effect. The penalties for wrong declarations are serious and avoidable.
Grace Shi is a partner at ECOVIS Beijing China. She has over 12 years of experience in accounting, auditing, and tax advisory services in both international accounting firms and large Chinese corporations. She has an international MBA and a US Global Finance Master’s degree. Since 2001, she is a Chinese Certified Public Accountant (CPA) and, since 2002, a Chinese Certified Taxation Agent (CTA). Mrs. Shi is one of the founders of ECOVIS R&G Consulting Ltd. (Beijing). She has perfect skills in written and spoken English and Chinese. For more information, please contact: firstname.lastname@example.org
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