Chinese Investors and US OECD Tax Issues

For Chinese investors who become EB5 Visa holders or other US green card they will be subject to annual US world wide tax reporting for income and disclosure of all offshore Financial Accounts over $10,000 that they own or control (FBAR filing: FinCen Form 114) and foreign financial assets over $50,000 (FATCA/Form 8938 attached to Form 1040/US Income Tax Return) or risk serious civil and criminal penalties.

The penalties may include a civil penalty for up to 50% of the account balance yearly for FBAR violations (which is computed annually; in the case of Florida Taxpayer Carl Zwerner he had a 150% penalty imposed after he lost it at trial so his $1.6m account cost him nearly $2.4m under the FBAR civil penalty). In addition a criminal penalty of up to 10 years in jail for each year the FBAR is not filed.

Under FATCA, which was enacted as law in March 2010, as of 2017 over 100,000 foreign financial institutions in over 80 countries are reciprocally exchanging tax information with the US government (Treasury Dept/IRS). If the offshore account has a US owner unless they supply their taxpayer ID information to the offshore bank, the US will withhold 30% of any US source dividends or interest at the source and 30% of gross sales of securities (i.e. 30% of the sales proceeds are withheld with no calculation for any taxpayer basis or other capital gain issues).

A Chinese investor who immigrates to the US is subject to world wide US income, estate and gift taxes and related tax filings which are subject to IRS audit with both tax, interest and civil and criminal penalties due for tax non-compliance. Unlike China, the IRS is a very powerful tax agency with nearly 100,000 employees, an over $10B annual budget while they collect over $3 trillion per year in US taxes due.

As of 2018, China will be one of 101 signatories to the Organization of Economic Development digital exchange of tax information between countries known as the Common Reporting Standards (CRS) which has even more expansive tax compliance required including bank balances and income related to insurance products.

To be forewarned is forearmed. For your Chinese investors who wish to immigrate to the US, Canada or Europe they are entering a new realm of detailed tax compliance requirements. Failure is punishable by jail and steep fines. So proceed with caution and hire the best experts before immigration.

As the quote goes: “It is not the seaworthiness of the vessel but the skillful navigation that assures the prosperous voyage”.

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