Some wealthy Chinese individuals are shifting assets from Singapore and Hong Kong into U.S. bank accounts after Beijing began retroactive taxation of offshore wealth in July. Citing CNBC, ABMedia reported that private bankers and lawyers serving Chinese clients said inquiries about opening U.S. accounts have climbed in recent months, with clients seeking to place assets farther from Beijing’s scrutiny.
Demand for U.S. accounts has picked up
Keith Tan, chief executive of Singapore-based Golden Acacia Capital, said the practice has become 「quite common」. He said clients began planning U.S. transfers in July, and some were able to open accounts in less than two months. In his words, 「the threshold for Chinese clients to open U.S. accounts and move assets there is not high」.
Tan said clients with larger pools of assets tend to choose major private banks, while those with smaller sums often turn to regional banks or online brokerages.
New offshore trust tax rules added urgency
China said in July that income and gains from offshore trusts held by Chinese tax residents would be taxed at 20%. The report said lawyers in Singapore and Hong Kong are busy helping clients calculate unpaid tax, unwind trust structures, sell stakes in listed companies, or apply for loans to pay large tax bills.
The United States is not part of the Organisation for Economic Co-operation and Development’s Common Reporting Standard, or CRS. The framework covers automatic exchange of financial account information across more than 100 jurisdictions. Under that system, banks in Singapore and Hong Kong are expected to report China-related accounts to Beijing, while U.S. banks do not carry the same obligation.
Advisers say U.S. structures offer reporting differences
James Wang, chief executive of private client tax adviser Blue Brick Consulting Group, said non-residents opening accounts in the U.S. can also find investment products with lighter reporting obligations to the Internal Revenue Service, and in some cases no reporting obligation at all. He added, however, that China’s latest rules require Chinese tax residents to self-report worldwide income.
A New York-based wealth planning adviser serving Chinese family offices said U.S. banks are trying to handle the increase in demand. 「Inquiries have surged, and some banks have shortened the time clients have to meet minimum funding thresholds,」 the adviser said, adding that accounts that fail to meet those thresholds will be closed.
Tan also said Chinese families whose children hold U.S. green cards use foreign grantor trusts to reduce part of their U.S. tax burden, with low-tax states such as Nevada and Florida drawing particular interest.
Lawyers warn hiding assets is not tax planning
Clifford Ng, a partner at Zhong Lun Law Firm in Hong Kong, said these clients 「are betting they will not be exposed」 because the U.S. does not participate in CRS information exchange. But he warned that money held offshore may already have been reported to Beijing through CRS, and records of funds leaving banks in Singapore or Hong Kong for the U.S. can still be seen.
「They may still be in breach because they have an undeclared offshore account that is generating profits and has not been reported domestically,」 he said. 「Hiding is not tax saving.」
Cris Cao, a partner at Beijing-based W&H Law Firm, made a similar point. Even if all funds are moved out of CRS-reporting accounts and into U.S. banks, he said, that 「does not naturally reduce or erase the tax authority’s right to tax, or the taxpayer’s tax obligations」. He added that 「a record of the transfer alone is enough for tax authorities to impose tax」.
Moving money out of mainland China is getting harder
Jingkuan Lin, a private banker at Bank of Singapore, said moving funds that are already offshore is relatively easy, but taking capital out of mainland China has become increasingly difficult. 「From now on, there is almost no large amount of money inside China that can leave the country,」 he said.
He said offshore banking is likely to become more limited to serving funds that are already outside China.