Just as the COVID-19 raged across the globe, the OECD (Organization for Economic Cooperation and Development) held a conference on the exchange of tax-related information on global financial accounts for three consecutive days from March 16 to March 18, 2020. The successful convening of this meeting cast a heavy message on the cross-border high net worth people all over the world, and once again demonstrated the determination and confidence of the OECD in combating global anti-tax avoidance, anti-tax evasion and anti-money laundering. CRS tax-related information has been exchanged at the level of tax bureaus in various countries or regions. After receiving the information, each tax bureau will enter the stage of practical operation and after the relevant information has been excluded, the tax bureaus of various countries and regions will take substantive actions one after another. In 2017 and 2018, the first tax-related information exchange conducted by tax authorities in nearly 100 countries or regions in accordance with the AEOI (Automatic Interchange Information System) standard has involved total assets of US $ 4.9 trillion.

Before the automatic exchange of tax information in the global financial account tax information exchange, the Ministry of Accounts and the State Administration of Taxation have officially issued the Announcement on Personal Income Tax Policies for Overseas Income on January 17, 2020 (hereinafter referred to as Announcement No. 3).

Since 2014, the era of global tax transparency has come! From 2020, the era of global crackdown on offshore account tax evasion is coming! The time has come. Are you ready?

Announcement No.3

1.       Resident personal taxation of overseas income and overseas tax credit

1) The eligible overseas income tax amount can be credited
Announcement No. 3 elaborates on the conditions to be met for the taxable overseas tax amount, which specifically lists several “excluded” situations in the taxable overseas tax amount. The relevant provisions of the corporate income tax overseas tax credit are basically consistent. In practice, different countries and regions have different tax systems and tax categories. Some overseas tax categories are not personal income tax and taxed separately, but in substance the nature is an income tax, according to the provisions of Announcement No. 3, tax credits are possible. Therefore, it is necessary to make an accurate assessment on the nature of the taxes paid by individuals abroad.

2) Treatment of the inconsistency between the tax year of the income source and the calendar year. Taxation of foreign income and tax credits have always been one of the practical difficulties in the case where the source of income is inconsistent with Chinese tax year. Announcement 3 clarifies that where the tax year of the source of income involves two calendar years, the corresponding Chinese tax year is confirmed according to the calendar year in which the last day of the source's tax year is located. For example, the 2019 and 2020 Hong Kong tax year ends on March 31, 2020, and the overseas income of the Hong Kong tax year corresponds to the Mainland's 2020 tax year. Based on this, tax returns and tax credits for overseas income are made.

3) Time limit for tax declaration between March 1 to June 30 of the following year, the new "retroactive credit" for tax declaration of the resident individual's overseas income shall be completed within the time limit prescribed by the tax law. That is, before June 30 of the following year, if the foreign income tax is not declared and the tax payment voucher cannot be obtained, the Chinese tax return should be completed on time. After the overseas tax return is completed and the tax payment voucher is obtained, the retroactive credit can be applied. The retroactive period is five years. In addition, after the tax credit is completed, the actual amount of tax paid abroad changes again, and it is necessary to pay attention to the requirements for recalculating the declaration adjustment.

  
2.       Changes in the rules of origin of overseas income and their impact on foreign individuals investing in China.

It should be noted here that the announcement supplements the determination of the source of property transfer proceeds from equity assets formed by individual transfer investments: If the invested party is an overseas enterprise or other organization, the corresponding income from the transfer of equity assets is overseas income, which has been implemented under the Chinese personal income tax system. However, Announcement No. 3 introduced an exception under this general principle: Transfer of equity assets formed by investment by Chinese enterprises and other organizations at any time within the first three years (36 consecutive calendar months) of the transfer. If the fair value of the assets of the invested enterprise or other organizations exceeds 50% directly or indirectly from real estate located in China, the income obtained is income derived from China.

Faced with the gradually strictness of China tax policy and collection management, when engaging in some economic activities, priority should be given to the prevention of tax risks, to prevent assets from shrinking due to lack of consideration of tax elements, and bring compliance risk. Because assets can only be stabilized based on measurement of tax requirements, and fully reflect the actual price and true value of assets. And we will say that if tax planning done well, we sleep well. If not, pay thousands dollars. There is no foreseen but met.