New financial reporting requirements for China

The State Administration for Foreign Exchange (SAFE) announced (in Circular 642) the revised ‘Measures for the Reporting of Statistics on International Receipts and Payments’ (国际收支统计申报办法), which were first published in 1995.

The news measures will affect individuals residing in the PRC for more than a year and corporations registered in China.

The new PRC Foreign Asset Reporting Requirements - which came into effect on 1st January 2014 - are widely seen as being intended to prevent or discourage the “offshoring” of assets.

1. ‘What must be reported’

Until now, PRC residents have only been required to report international economic transactions with non-residents. From 1 January 2014, PRC residents will be required to report their foreign financial assets and liabilities, and all cross-border transactions.

At this stage, the definition of ‘financial assets and liabilities’ remains uncertain, as does the exact type of ‘transactions’ that must be reported.

2. ‘Who is liable to report’

Included in the definition of PRC residents that must meet the new requirements are:

• Individuals residing in the PRC for over one year
• PRC passport holders who have been absent from the PRC for less than one year
• Entities or corporations that are incorporated in the PRC
• Non-residents who perform economic transactions within the PRC
• Representative offices or branches of foreign institutions such as banks

These reporting requirements previously applied to the following financial organisations: (a) Securities Dealers/Securities Registration Institutions; (b) Futures and Options Dealers; (c) Various Financial Institutions. Now an extra category has been added: institutions based in China that provide registration, clearing, and custodial services. This category may include funds companies, domestic trust companies and others.

3. New confidentiality and data protocols

There is general belief in China that the new measures are intended to prevent or discourage the offshoring of assets. On 29 December 2013, the Central Committee of the Communist Party of China issued the ‘Announcement on becoming a better Leader/Official by reporting personal relevant matters’ or 《关于进一步做好领导干部报告个人有关事项工作的通知》. This will restrict appointments and promotion opportunities for leaders, officials, and state employees in cases where individuals do not accurately report their income, properties, and spouse’s or children’s immigration status etc.

Failure to comply with the new reporting requirements will result in fines of up to RMB 300,000 for institutions and companies, and RMB 50,000 for individual cases.

These measures could also be a prelude to China’s move to increase taxes on foreign assets at some point in the future. Some fear this could encourage wealthy and better-educated Chinese to consider immigration away from the PRC.