A recent Circular, No. 642, will require Chinese residents to report their foreign financial assets and liabilities, as well as cross-border transactions. The circular was issued on 9 November 2013, and takes effect on 1 January 2014.
Who is liable to report?
The reporting obligations apply to Chinese residents, including foreign persons within the PRC.
Generally, a resident for this purpose includes:
- an individual who has resided in the PRC for more than one year;
- a PRC citizen who has been absent from China for less than one year (however, students studying abroad remain liable to report even after one year);
- an enterprise incorporated in China;
- a representative office or branch of a foreign corporation (including banks);
- a non-resident who conducts economic transactions within China.
Financial institutions are specifically targeted under the circular. Also, persons who conduct registration, clearing and custodian services, and dealers in securities and futures, must declare their agency transactions.
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What must be reported?
Residents of China will need to report to the State Administration of Foreign Exchange (SAFE) details of:
- foreign financial assets and liabilities;
- economic transactions conducted with non-Chinese residents, either directly or through financial institutions.
It is unclear what constitutes foreign financial assets and liabilities, and also what “transactions” need to be reported.
Failure to comply with these reporting obligations will result in fines of up to RMB300,000 (US$49,000) for corporations and RMB50,000 for individuals.
Likely impact of new rules
It appears from the circular that the purpose of Circular 642 is merely to enable SAFE to collect and maintain “international receipts and payment statistics”. Both SAFE and its employees are required to keep any information they obtain confidential from other governmental agencies “except as otherwise provided for by law”.
It is not yet known what provisions will be made for disclosures to other agencies, including tax bureaus. SAFE is required to issue further implementing rules to clarify exactly what must be reported, including the necessary procedural requirements.
Retroactive
Any rules issued may effectively be retroactive to the start date of 1 January 2014. Just what the practical implications will be remains to be seen.
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