Why BAD financing is not bad financing
Bank acceptance drafts (BADs), also known as bank ...
Treasurers in overseas financial institutions whose work involves tax and compliance issues may face increasing challenges arising from China’s adoption of the Organization for Economic Cooperation and Development's (OECD) common reporting standard (CRS).
As China's State Administration of Taxation will soon start to collect detailed information on financial accounts held by non-citizen clients, financial institutions will have to comply with tighter know your client (KYC) and anti-money laundering (AML) rules.
China’s State Administration of Taxation released CRS compliance requirements as guidance on financial institutions last October. According to the guidance, the new requirements became effective in China on January 1 2017. Hong Kong is also in the process of adopting the CRS, as new reporting requirements came into effect in 2017.
The guidance requires both Chinese overseas depository and custodial institutions and insurance companies to report non-citizen client information to the Chinese tax authority. Leasing companies are not required to do so.
While a large segment of the clients of overseas financial institutions in China are Chinese tax-paying citizens or corporates, whose information is not required to be supplied to the Chinese tax authority, multinational corporations still need to investigate their clients as a part of due diligence. Those who do not implement sufficient due diligence may face penalties and even a downgrade by the Chinese government.
The main obligation of the tax and compliance departments will be identifying non-citizen accounts. Individuals or corporates applying to open accounts in China will be asked to submit a self-statement to prove their tax-paying status in China. According to a partner at a big four accounting firm, financial institutions tend to be more ready to identify an account as a non-citizen account, in order to avoid compliance issues. For instance, if a client has a dual nationality the client will be identified as a non-citizen client.
Although official regulations on the CRS in China (including Hong Kong) have not yet been fully implemented, financial institutions in Hong Kong have already implemented tighter KYC controls. The Chinese media reported that some insurance companies in Hong Kong have already started to follow the CRS standard by reporting new insurance policy holders’ information to the tax authority in Hong Kong.
Places such as Singapore, New Zealand, The Cayman Islands, The Virgin Islands, The Cook Islands and The Guernsey Islands, where wealthy Chinese people have often chosen to set up family trust funds, have all reportedly signed up to join in with the CRS.
17 Feb 2017