Automatic Exchange of Financial Account Information (AEOI) - A matter of compliance for wealthy Chinese citizens?
In 2014, the Global Forum endorsed the new common reporting standard on automatic exchange of financial account information (AEOI). Jurisdictions that have publicly committed to implementing the AEOI standard on a timeline will first exchange tax information in 2017 or 2018. The Global Forum, in collaboration with the OECD, has been working hard to support these commitments. China (as well as Hong Kong) fall within the jurisdictions undertaking first exchanges in 2018. The first information exchange involving China will occur by September 2018.
Various Chinese authorities have recently jointly issued Notice 14 “Administrative Measures for Due Diligence on Non-Resident Financial Account Information” which will be implemented on 1 July 2017. According to Notice 14, financial institutions need to complete due diligence and remediation procedures on any pre-existing individual high-net worth financial accounts (with an aggregate balance exceeding US$ 1 million as of 30 June 2017) by 31 December 2017. Moreover, financial institutions need to complete due diligence and remediation procedures on the remaining pre-existing individual low-net worth financial accounts (with an aggregate balance of no more than US$ 1 million as of 30 June 2017) as well as all other pre-existing entity financial accounts (with an aggregate balance exceeding US$ 250,000 as of 30 June 2017) by 31 December 2018.
Apparently, the introduction of AEOI will significantly enhance the transparency of tax information among tax jurisdictions. The information of income/assets earned/maintained by a Chinese individual/entity in foreign tax jurisdictions will potentially be made available to the Chinese tax authorities. As such, it will be important for taxpayers to identify their tax residency if unclear, review their tax position and ascertain their tax exposures in every relevant jurisdiction.