Wealthy Chinese shift offshore money to U.S. banks as Beijing widens tax net
Private bankers say inquiries about U.S. accounts rose after China began taxing offshore trust income at 20% in July, though lawyers warn the move may only delay tax bills.
At a glance
- Inquiries about U.S. bank accounts rose among wealthy Chinese after Beijing imposed retroactive taxes on offshore wealth in July.
- China taxes income and gains from overseas trusts owned by Chinese tax residents at 20%, prompting clients to restructure or unwind trusts.
- Lawyers warn transfers to U.S. banks are visible on the way out and do not remove the obligation to declare and pay Chinese tax.
Wealthy Chinese clients rattled by Beijing's widening pursuit of overseas wealth are moving money into U.S. bank accounts, private bankers and lawyers in Singapore and Hong Kong say, shifting assets previously held in those two financial hubs further from Beijing's reach.
Inquiries about opening American accounts have grown in the months after China imposed retroactive taxes on offshore wealth in July, the advisers said. Authorities said that month that income and gains from overseas trusts owned by Chinese tax residents would be taxed at 20%, setting off a scramble for cash and alternative structures.
Keith Tan, CEO of Singapore-based Golden Acacia Capital, said his clients began planning exits to the U.S. in July and some had accounts set up in less than two months. "The hurdle is not that high for Chinese clients to open American accounts and transfer assets there," he said. Wealthy clients tend to choose large private banks, while smaller accounts go to regional banks or online brokers, Tan added.
Why the U.S.
The U.S. sits outside the Common Reporting Standard, the OECD framework under which more than 100 jurisdictions automatically share financial account data. Banks in Singapore and Hong Kong are supposed to report China-linked accounts to Beijing; U.S. banks have no such obligation.
James Wang, CEO of Blue Brick Consulting Group, a private-client tax advisor, said non-resident clients who open foreign bank accounts in the U.S. can find investment vehicles with reduced or no tax-filing obligations to the Internal Revenue Service. China's latest regulations, however, require people classified as Chinese tax residents to self-declare worldwide income to Beijing.
A New York-based wealth-planning adviser who works with Chinese family offices, speaking on condition of anonymity, said U.S. banks are straining to keep up with demand and some have shortened the timeframe for clients to meet required minimum capital commitments before accounts face closure.
Tan said Chinese families whose children hold U.S. green cards have also used foreign grantor trusts — structures treated as owned by their non-American founder — to shield them from some U.S. tax exposure, with low-tax states such as Nevada and Florida proving popular.
Lawyers warn of limits
Clifford Ng, a partner at Zhong Lun law firm in Hong Kong, said such clients "are gambling on not being disclosed" because the U.S. does not share information under the CRS. He expects some Hong Kong or Singapore residents whose trusts have not yet been flagged to Beijing to unwind those structures and move the money out.
Ng cautioned that the route may be temporary: money held offshore has probably already been reported to Beijing through the CRS, so a transfer from a Singapore or Hong Kong bank to a U.S. one would be visible on its way out. "Hiding is not tax planning," he said.
Cris Cao, a Beijing-based partner at W&H Law Firm, said moving money into U.S. accounts does not by itself reduce or wipe out the tax authorities' right to tax or the obligation to pay, since a record of the transfer exists.
Jingkuan Lin, a private banker at Bank of Singapore, said getting capital out of mainland China has become increasingly difficult, adding that "nearly no sizeable money onshore will be able to leave the country from now on."
Source: CNBC.
Questions and answers
- Why are wealthy Chinese moving money to U.S. banks?
- The U.S. sits outside the OECD's Common Reporting Standard, so unlike banks in Singapore or Hong Kong, American banks are not required to automatically share China-linked account data with Beijing.
- What is China's new tax on offshore trusts?
- Authorities said in July that income and gains from overseas trusts owned by Chinese tax residents would be taxed at 20%, prompting clients to seek cash or alternative structures.
- Does moving money to a U.S. account avoid Chinese tax?
- No, lawyers say. Chinese tax residents must self-declare worldwide income, and money leaving a CRS-reporting bank leaves a record that tax authorities could use to levy tax.
