Citizens' foreign accounts under scrutiny

SAT's implementation of new standard to slow capital outflow: experts

The State Administration of Taxation (SAT) will monitor Chinese citizens' foreign accounts information in 101 countries and regions following the implementation of the localized Common Reporting Standard (CRS) this year, a move that experts said will plug loopholes in previous policies governing domestic capital outflow and will contain the exit of money.

Under the new rule, which was put into effect on January 1, Chinese citizens are required to fill out a statement declaring their tax identity when opening a new bank account, the Beijing Youth Daily reported on Sunday. They also need to write out an application statement explaining their purposes when buying foreign currencies.

The SAT will regularly exchange residents' account information with tax authorities in 101 countries and regions who have pledged to follow the CRS, which was published by the G20 in July 2014, the report noted. China vowed to carry out the standard in September 2014 and solicited public opinion on a draft regulation for the localization of the CRS in October 2016.

According a schedule outlined in the SAT's statement in October 2016, China would begin investigating newly-opened personal and institutional bank accounts on January 1 and finish the investigation of high net-worth accounts, or those with a balance exceeding 6 million yuan ($872,410) by the end of 2017. The investigation of all bank accounts is expected to be concluded by the end of 2018.

The country is supposed to exchange information with foreign counterparts for the first time in September 2018, the statement noted.

The move aims to crackdown on those who illegally use foreign accounts to evade taxes and improve the country's tax transparency through international cooperation, said the statement.

Capital outflow

Experts noted that the new regulation, although "a normal pushing forward of tax reform," more significantly reflected the Chinese government's agenda for preventing capital from escaping the country.

One of the groups that will be largely affected after the implementation of the policy are "Chinese citizens who have allocated large amounts of overseas financial assets, especially purchasing houses," Xu Gao, chief economist at China Everbright Securities Co, told the Global Times on Sunday.

Xu noted that supervisions on overseas home-buying were quite loose prior to the end of 2016, although such practices are banned according to relevant policies. "Acquiring Chinese citizens' foreign bank accounts provides data support, enabling Chinese authorities to target specifically at illegal behaviors," Xu said.

In addition, Hong Kong launched the CRS this year, so mainland residents who purchased insurance products in Hong Kong are also listed on the CRS exchange, experts noted.

In the third quarter of 2016, investors from the Chinese mainland spent a record HK$18.9 billion ($2.4 billion) worth of premiums in Hong Kong, up 160 percent year-on-year, according to a report from Bloomberg.

In line with the new rule, information for Chinese mainland residents who buy insurance worth more than HK$7,800 in 2017 will be submitted to mainland tax authorities, the Beijing Youth Daily reported, citing sources close to the matter. The tax ministries will judge the legitimacy of cross-border capital outflows based on the documents.

Moreover, Hong Kong insurance companies are obligated to report on Chinese mainland high net-worth clients who bought large amounts of insurance prior to 2017, the report noted.

Tightened regulation

Liu Jian, a senior research fellow at the research center under the Bank of Communications, predicted that domestic capital flight will slow down this year compared with 2016, thanks to a barrage of measures the government has rolled out in recent months to tighten the grip on capital outflow and attract capital inflow.

For example, individuals who wish to convert yuan to foreign currencies must provide more detailed information, including the purpose of purchase, to the banks, the State Administration of Foreign Exchange said in January.

But pressure remains, as "the yuan's depreciation pressure persists, while the foreign exchange quota of $50,000 a year remained unchanged," Liu told the Global Times on Sunday.

In January, China's foreign reserves slipped 0.4 percent year-on-year to $2.998 trillion, according to statistics from the People's Bank of China, the central bank.