Overseas Chinese to get taxed
Chinese nationals and companies operating overseas, who hold their fortunes outside of China, will soon be required to pay taxes on their worldwide earnings come Feb 1.
Part of Beijing’s New Year resolution to crack down on tax avoidance and evasion, the general anti-avoidance rule (GAAR) and new penalties will now be strictly enforced as reported by several news media.
Announced by China’s State Administration of Taxation through its website, serious offenders – including individuals and companies – face 18 disciplinary measures.
These include a ban from leaving the country, bar from issuing bonds, restrictions on access to state funds and being named and shamed in the media should they be found guilty.
This move is touted to indirectly hit many wealthy Chinese individuals, who commonly make their overseas investments through specially created companies, often located in the Caribbean.
“Multinational companies, including banks with global operations, must be more cautious about their intra-group transactions, especially those operating in China with large amounts of investment and negative taxable income,” commented Wolters Kluwer Financial Services, a US provider of risk and compliance services.
“Multinationals must review their approach to transfer pricing and cost allocation. All transactions must be kept fully transparent. To avoid operational risk, the firm must enhance its internal control as well,” said Spark Wang, a senior regulatory intelligence expert with Wolters Kluwer.
“The recent anti-avoidance measures could have a significant impact on enforcement of international tax arrangements in China and close monitoring by multinationals is certainly advisable,” said Christopher Xing, a KPMG China tax partner.
“The GAAR rules are important as they set the scene for enforcement by tax authorities in future.”
This drastic move puts China on the same page as the US, which similarly taxes international American operations.
Guangzhou’s government has begun to summon executives from 150 of the largest corporations based there to a meeting on Jan 28 to discuss the obligation of their overseas employees to pay Chinese taxes.
Municipal governments in Beijing and other big cities are also beginning to contact big firms in their jurisdictions and telling them to provide detailed information on the expatriates’ incomes, tax advisers said.
The State Administration of Taxation in Beijing has begun a separate campaign to curb tax evasion by Chinese companies as they start to make big overseas investments.
