China Agrees to FATCA Compliance

Posted on by

SHANGHAI – China has reached an “in substance” intergovernmental agreement with the United States on cooperation with the Foreign Account Tax Compliance Act (FATCA), according to the U.S. Treasury Department. The move is widely expected to benefit the China-based subsidiaries of companies in the U.S., Hong Kong and elsewhere. In return, Chinese financial institutions will no longer be threatened with blacklisting and other penalties as stipulated by FATCA.

FATCA is a U.S. law designed to combat tax evasion and requires financial institutions based in cooperating nations to provide information on U.S. taxpayers to the U.S. government. In agreeing to FATCA compliance, Chinese authorities will similarly be able to obtain information on Chinese taxpayers based in the U.S. Non-compliant countries are subject to a 30-percent withholding tax on U.S.-related income channeled through their domestic financial institutions.

Previously, a July 1 deadline was set by the U.S. tax authorities for new clients of overseas financial institutions to begin reporting their U.S.-related income. However, as it became clear that smaller banks in many jurisdictions would be unable to meet this deadline, its terms were revised to “making efforts in good faith” toward compliance. A secondary deadline of January 1, 2015 remains in place for overseas banks to begin providing clients’ information to the U.S. government.

RELATED: China’s Relationship with the Contentious U.S. FATCA

“China’s agreement to FATCA compliance is important, as it was one of the last remaining significant countries to establish an IGA with the United States,” says Chris Devonshire-Ellis of Dezan Shira & Associates. “Beijing will also want data on Chinese taxpayers abroad, including information on corrupt Chinese officials.”

Under FATCA, the financial accounts and offshore assets of U.S. individual taxpayers must be reported on Form 8938 of an income tax return if the total asset value exceeds a certain reporting threshold. This threshold varies, but for overseas American nationals it is generally around the US$200,000 mark. Clarification on what this means for U.S. nationals in China can be found here.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email china@dezshira.com or visit www.dezshira.com.

Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

Related Reading

Strategies for Repatriating Profits from China
In this issue of China Briefing, we guide you through the different channels for repatriating profits, including via intercompany expenses (i.e., charging service fees and royalties to the Chinese subsidiary) and loans. We also cover the requirements and procedures for repatriating dividends, as well as how to take advantage of lowered tax rates under double tax avoidance treaties.

 

CB_2014_0102_cover90x125Annual Audit and Compliance in China
In this issue of China Briefing, we discuss annual compliance requirements for foreign-invested enterprises, including wholly-foreign owned enterprises, joint ventures and foreign-invested commercial enterprises, as well as the less demanding requirements for representative offices. We also highlight the most recent tax and legal changes that will significantly influence the way companies do business in China in 2014.



2 responses to “China Agrees to FATCA Compliance”

  1. ALOK KR KARNA says:

    china opted for which model for reporting under FATCA, IGA model 1 or model 2
    who is the concern authority or to whom we report as Foreign Bank branches in china
    which form to be used for NIL reporting under FATCA.

Leave a Reply

Your email address will not be published. Required fields are marked *

Dezan Shira & Associates

Meet the firm behind our content. Dezan Shira & Associates have been servicing foreign investors in China, India and the ASEAN region since 1992. Click here to visit their professional services website and discover how they can help your business succeed in Asia.

News via PR Newswire

Never Miss an Update

Subscribe to gain even better insights into doing business throughout the China. Subscribing also lets you to take full advantage of all our website features including customizable searches, favorites, wish lists and gift functions and access to otherwise restricted content.

Scroll to top