At the beginning of this year, China began implemented a new system of self-reporting for foreign assets by amending two-decade-old regulations which required reporting of foreign transactions. Though these amendments do not add any new reporting requirements for financial institutions, neither the old nor new regulations ever applied to Chinese citizens permanently resident abroad, they don’t violate the privacy laws of foreign countries, and the implementation of the regulations is actually proceeding on schedule rather than being delayed by years, the Compliance-Industrial complex has been quick to saddle it with the inaccurate name of “China’s FATCA”.
For a translation of the regulations and a brief analysis of the impact of the amendments, keep reading. This post probably won’t be of much use to U.S. Persons seeking practical advice for dealing with the citizenship-based taxation mess that the Homelanders have thrown at us; it’s a supplement to my next post that’s actually about China and FATCA.
Below, I provide a comparison & translation of China’s foreign asset self-declaration regulations before and after State Council Order #642 of 19 November 2013, which amended them to their present form from the previous version. Primarily, the amendment extends the requirement for self-declaration of foreign assets — which, per Article 2, applies only to Chinese residents, and not non-Chinese residents mentioned in Article 8 — from institutions to individuals, but also clarifies that only financial assets are reportable assets. If I understand correctly, this excludes physical assets (such as fixed plant) not having financial institution counterparties.
One other prominent change was to clarify the legal basis for fines and punishments. In particular, fines for individuals who violate the regulations are no longer at the discretion of the State Administration of Foreign Exchange, but must be in accord with Exchange Control Ordinance Article 48, which limits the fine for an individual to ¥50,000 (~US$8,250). This contrasts with the IRS, which made up its own extra-legal fines for the “Offshore” “Voluntary” Disclosure Program completely out of proportion to the actual tax owed, while Congress looked the other way or cheered them on.
These amendments do not place any new demands on foreign financial institutions besides clarifying their duty to protect customer data, and were reported with little fanfare in the domestic press nearly three months ago (the People’s Daily ran a brief article bragging that “it’s no longer easy for corrupt officials to transfer their assets“). The only impact this should really have on the financial sector is that more people might hire accountants to help them to fill out the forms; nevertheless, the foreign press has been running hog-wild with it and even started calling it “China’s FATCA”.
As usual, search-engine optimisation specialists for accountants & tax lawyers will take any excuse to put those two hot keywords on the same webpage with each other — probably in the hopes of fooling people into clicking through onto their articles in search of information about the actual progress of the alleged Sino-American FATCA IGA negotiations. Of course, as some of their articles are forced to admit (once the reader has been drawn in by the lying headline), the new regulations bear a far closer resemblance to FBAR than FATCA, and unlike either of those U.S. F-words, they do not have extraterritorial effect.
Passages which were deleted from the regulations are
in red and struck out, while passages which were added to the regulations are in green (beside incidental renumbering of articles).
|Article 1: These regulations are formulated in accord with the Statistical Law of the People’s Republic of China with the aim of improving international payments statistics.
|Article 2: The scope of the International Payments Statistical Declaration Regulations includes all economic transactions occurring between Chinese residents and non-Chinese residents and Chinese residents’ external financial asset and liability positions.
|Article 3: In these regulations, “Chinese residents” refers to:
|(1) Natural persons residing in Chinese territory for one year or more, excluding foreign, Hong Kong, Macau, and Taiwan students and medical care seekers in Chinese territory, and foreign diplomatic and consular personnel stationed in China and their families;
|(2) Chinese persons who leave the country for short periods (time of residence abroad less than one year), students studying abroad, medical care seekers, and Chinese diplomatic and consular personnel stationed abroad and their families;
|(3) Firms and institutions with juridical personhood established in Chinese territory according to law (including foreign-invested firms and foreign-capitalised banks), and the Chinese offices of foreign juridical persons (not including the Chinese offices of international organisations or foreign embassies and consulates in China);
|(4) Chinese national agencies (including Chinese embassies and consulates abroad), organisations, and military units.
|Article 4: These regulations apply to all domestic regions of China, including free trade zones and bonded warehouses established in Chinese territory.
|Article 5: The State Administration of Foreign Exchange shall be responsible for the organisation and implementation of international payments statistical declaration in accord with the rules of the Statistical Law of the People’s Republic of China, and shall carry out oversight and inspection; collect statistics on, compile, and publish the status of international payments and the status of international investments; formulate and amend implementation rules for this law; and issue international payments statistical declaration forms and statements. The relevant government departments shall cooperate with the work of international payments statistical declaration.
|Article 6: International payments statistical declaration implements the principle of declaration by the transaction’s participants, and employs a combined approach of indirect declaration and direct declaration, [as well as] per-transaction declarations and declarations at regular intervals.
|Article 7 Chinese residents and non-Chinese residents who conduct economic transactions within Chinese territory shall declare
|Article 8: Chinese residents who conduct transactions with non-Chinese residents through a domestic financial institution shall declare the transaction details to the State Administration of Foreign Exchange or one of its branches through that financial institution.
|Article 9: Chinese domestic institutions which provide depository, clearing, and custodial services and
|Article 10: All types of Chinese domestic financial institutions shall directly declare to the State Administration of Foreign Exchange or one of its branches the status of their external operations conducted as principals, including their external financial assets and liabilities and their changes, the payments of the corresponding capital gains and interest, and external financial services payments and other payments; and shall fulfil their duties which arise from Chinese residents and non-Chinese residents carrying out international payments statistical declaration activities with them.
|Article 11: Chinese non-financial institutions which open accounts outside of Chinese territory shall directly declare to the State Administration of Foreign Exchange or one of its branches the transactions conducted with non-Chinese residents through that account, as well as its balance. (NB: The word for “account” was changed from 帐户 to 账户; the latter more clearly implies “financial account”, but otherwise the words are synonyms, not to mention homophones, so the English translation of the old and new versions remains the same.)
|Article 12: Chinese domestic foreign-invested firms, firms having direct investments abroad, and other non-financial institutions which have external financial assets and liabilities, must directly declare their external financial assets and liabilities and their changes, and the corresponding payments of capital gains, dividends, and interest to the State Administration of Foreign Exchange or its branches.
|Article 13: Chinese resident natural persons who possess external financial assets or liabilities shall declare the relevant details of those external financial assets and liabilities in accord with the rules of the State Administration of Foreign Exchange.
|Article 14: The State Administration of Foreign Exchange and its branches may carry out samples or surveys regarding international payments.
|Article 15: The State Administration of Foreign Exchange and its branches have the right to carry out inspection and verification of Chinese residents’ and non-Chinese residents’ declaration details, and the declarants and their related institutions and persons shall provide the information and cooperation required by the inspection and verification.
|Article 16: The State Administration of Foreign Exchange and its branches shall strictly protect the privacy of concrete data declared by declarants, and shall use them only for international payments statistics. Unless otherwise stipulated by law, international payments statistics personnel may not provide, in any form to any institution or person, concrete data declared by declarants. Banks, dealing firms, and institutions which provide depository, clearing, and custodial services shall strictly protect the privacy of concrete data declared by declarants of which they come to have knowledge in the course of doing business.
|Article 17: Chinese residents and non-Chinese residents who
|Article 18: International payments statistics personnel who violate Article 16 of these regulations shall
|Article 19: The State Administration of Foreign Exchange shall formulate International Payments Statistical Declaration Regulations Implementation Rules in accord with these regulations.
|Article 20: These regulations shall come into force on 1 January 1996.