Tax will be charged on money in expat’s account?

It’s 2019 now.  Discussion over the new IIT law has not been overyet and all kinds of rumors could be heard.

One rumor says that “bank will report any expat’s account with a balance over 5000RMB”.  Obviously, the source mixed the updated IIT threshold (5000RMB) with a not so updated regulation-Administrative Measures for theReporting of Large-sum Transactions and Suspicious Transactions by FinancialInstitutions, which actually come into effect as early as on July 1, 2017, but was extensively discussed later last year.

So,take it easy.  Firstly, there were related measures back in 2006, it’s nothing new.

Secondly, anti-money laundering and anti-terrorism is the main purpose, as stated in article1 of the Measures.

Then what it says exactly?

Afinancial institution shall report the following large-sum transactions: 

(1) Cash deposit, cash withdrawal, foreign exchange settlement and sales in cash,exchange of foreign currencies in cash, cash remittance, payment of cash billsand other forms of cash receipts and payments whose transaction value reaches or exceeds RMB 50,000 or foreign currency equivalent of USD 10,000 on a per-transaction or cumulative basis on a given day; 

(2) Fund transfers whose transaction value reaches or exceeds RMB two million orforeign currency equivalent of USD 200,000 on a per-transaction or cumulative basis between the bank account of a client that is not a natural person and another bank account on a given day; 

(3) Domestic fund transfers whose transaction value reaches or exceeds RMB 500,000 or foreign currency equivalent of USD 100,000 on a per-transaction orcumulative basis between the bank account of a natural person client andanother bank account on a given day; and 

(4) Cross-border fund transfers whose transaction value reaches or exceeds RMB200,000 or foreign currency equivalent of USD 10,000 on a p er-transaction or cumulative basis between the bank account of a natural person client andanother bank account on a given day. 

Cumulativetransaction value shall be calculated and reported on a per-client basis byunilaterally adding up the receipt or payment of funds.

Now, I am sure I have clarify it already.  But I will not say it has nothing to do with tax.

As part of the effort for tax agency to strength their taxation management, it will bemore than natural for it to use data from financial institute to do so in nearfuture.

So my suggestionis: if you are doing business in China as an individual, maybe it’s time to consider setting up a WFOE now.  Everyone can see expenses exempted from individual income is too limited, while any reasonable expenses could be treated as cost of company operation, as long as Fapiao is provided.

On the other hand, threshold for incorporating a WFOE is pretty low today.  There is no more deadline for fund input, nomore minimum capital requirement, no more pre-permission from Ministry of Commerce of PRC ( it may took more than one month before to get it), and youcan share office with other people…as long as you can provide a legitimate ID (you even don’t have to authenticate your passport in the embassy in your home country if there is entry record (in China) in your passport), it may takes tendays to get your license ready!

What do you think?

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