The Administrative Measures on Due Diligence of Non-resident Financial Account Information in Tax Matters (“the Measures”) came into effect on July 1, 2017, which is viewed as China’s domestic legislation for implementation of CRS in China. According to the Measures, financial institutions shall establish internal systems and practical mechanisms to comply with the Measures to fulfill the obligations specified in the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information.
In general, the obligation of financial institutions under the Measures are summarized as “understand the tax resident identity of the account holder or controller, identify financial accounts owned by non-residents and collect and submit the relevant account information”. Correspondingly, the account holder is obliged to “provide financial institutions with the relevant information specified herein in a true, timely, accurate and complete manner”.
The Measures set out the scope and definition of financial institutions, financial accounts, non-residents, passive non-financial institutions and so on. According to Article 6, Article 7 and Article 8 of the Measures, financial institutions include depository institutions, custodial institutions, investment institutions, specific insurance institutions as well as the branches. The Measures also provide a non-exclusive list of financial institutions including commercial banks, rural credit cooperatives, securities companies, futures companies, securities investment fund managements companies, private equity fund management companies, partnerships engaging in private equity fund management, and trust companies.
The Measures also set out other detailed requirements, for example, a financial institution is allowed under the measures to entrust a third party with due diligence, provided that the relevant liabilities are still borne by the financial institution. Moreover, information collected during the implementation of the Measures shall be kept by the financial institutions for at least five years.
Timeline of Mainland China & CRS
- In September 2014, Mainland China committed to the implementation of “Standard for Automatic Exchange of Financial Account Information Intax Matters”
- In December 2015, Mainland China signed the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information
- By December 31,2017, financial institutions shall complete the due diligence procedures for a stock individual account of high net worth and identify non-resident accounts
- By September 30, 2018- Mainland China will exchange related information with other countries (or regions) who has committed to CRS.
- By December 31, 2018, financial institution shall complete the due diligence for a stock individual account and identify non-resident accounts.