Recently, many Chinese tax resident clients with overseas financial accounts have reported receiving text messages from China tax authorities reminding them to file their tax returns. The text message prompts: According to the relevant provisions of the Individual Income Tax Law of the People's Republic of China, resident individuals who obtain income (including but not limited to interest, dividends, bonuses, property transfer, wages and salaries, etc.) from outside China shall file tax returns and pay taxes within the period from March 1 to June 30 of the following year when they obtain the income. Please conduct a self-check on your overseas income and tax payment situation. If there are any omissions, please promptly handle the declaration or correct the declaration through the Natural Person Electronic Tax Bureau." If you have also received such text messages, it is likely that your overseas financial account data has been exchanged by CRS. Regarding CRS-related issues, Kaizen has summarized some materials for clients' reference.
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The Origin of CRS
The full English name of CRS is "Common Reporting Standard". It was released by the Organization for Economic Cooperation and Development (OECD) in July 2014, aiming to provide a powerful tool for countries to enhance international tax cooperation and combat cross-border tax evasion.
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Operating Principle of CRS
First, a financial institution in one country (region) identifies the accounts opened by individual and enterprise tax residents in another country (region) in its institution through due diligence procedures. It then reports information such as the account holder's name, taxpayer identification number, address, account number, balance, interest, dividends, and income from the sale of financial assets to the competent authority of the country (region) where the financial institution is located on an annual basis. Then, the tax authority of that country (region) will exchange information with the tax authority of the account holder's home country, ultimately providing information support for cross-border tax source supervision in various countries (regions).
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How to Determine whether one constitutes a tax resident of a country (region)
Tax laws of all countries (regions) have relevant provisions for constituting resident taxpayers, namely the rules for determining the status of tax residents. Kaizen can provide clients with rules for determining tax resident status in various countries for reference.
Generally, account holders shall, based on their own actual circumstances and in combination with the tax resident status recognition rules of relevant countries (regions), make a comprehensive judgment on their own tax resident status. The account holder may be a tax resident of two or more countries (regions) simultaneously.
For example:
Example 1: A person has domicile in Country A and pays taxes as a tax resident in Country A. If he resides in Country B for more than 183 days in a tax year, due to the length of his stay, he is taxed as a tax resident of Country B according to the domestic law of Country B. Therefore, he is tax resident in both Country A and Country B.
Example 2: A person has domicile in Country A and pays taxes as a tax resident in Country A. If he stays in Country B for five weeks, he does not constitute a tax resident of Country B according to the domestic law of Country B. Therefore, he is merely tax resident of Country A.
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If the tax resident status is changed, can the reporting of CRS be avoided?
In order to conceal the true tax resident status and evade CRS information reporting, a person may join a country (region) where he/she does not need to reside in a certain country (region) for a certain period of time, or even does not need to reach the country (region) at all, but can obtain local citizen or resident status merely through investment or payment of fees. Can such a handling method avoid CRS reporting?
Generally speaking, if financial institutions encounter clients who claim to be tax residents of these countries (regions), they need to take enhanced identity verification measures and ask the clients the following questions:
A. Have you obtained the resident status of that country (region) through the investment immigration program?
B. Do you also have the right of residency in other countries (regions)?
C. Did you reside in other countries (regions) for more than 90 days in the previous year?
D. Did you file personal income tax returns in other countries (regions) in the previous year?
Financial institutions should carefully determine a client's tax resident status based on relevant information. If the answers to questions 2, 3 or 4 are affirmative, they shall also confirm the client as a tax resident of another country (region).
Kaizen’s Kind Reminder
The countries where financial institutions currently adopt enhanced identity verification are as follows: Antigua and Barbuda, The Bahamas, Bahrain, Barbados, Cyprus, Dominica, Grenada, Malta, Mauritius, Monaco, Montserrat, Panama, Qatar, Saint Kitts and Nevis, Saint Lucia, Seychelles, Turks and Caicos Islands, United Arab Emirates.
This means that under the supervision of CRS, immigrants to the above-mentioned countries may also be recognized as tax residents of other countries (regions).
KAIZEN Group is equipped with experienced and highly qualified professional consultants and is therefore well positioned to provide professional advice and services in respect of the formation and registration of company, application for various business licenses and permits, any compliance, tax planning, audit, and accounting in China. Please call and talk to our professional consultants for details.
KNOWLEDGE
