Friday May 25, 2018

Think twice before any possible immigration

2012-01-06 13:40 Global Times     Web Editor: Zhang Chan comment
A brochure for immigration to the US is distributed at a study-abroad fair held in Xiamen, Fujian Province, on November 6, 2011.Photo: CFP

A brochure for immigration to the US is distributed at a study-abroad fair held in Xiamen, Fujian Province, on November 6, 2011.Photo: CFP

Yan Rong, a wealthy businesswoman who has been contemplating possible immigration to the US, is second guessing her plan after learning that she would have to report her assets in China to the US government should her application be accepted.

"The US has a very sophisticated tax system, you can't expect to exploit loopholes there like you do in China," Yan told the Global Times.

The 35-year-old Shanghai native, who owns several private schools and a big stake in an electronic company, was referring to the Foreign Account Tax Compliance Act, which was enacted in 2010 and requires US citizens report their foreign financial assets.

Late last month, the Internal Revenue Service (IRS) released details on the Act, which observers say might put a dent in Chinese nationals' enthusiasm to emigrate to the US, particularly for China's nouveau riche who have become the largest group of people emigrating to the country through investments last year.

Plans dropped

According to the act, individuals must file Form 8938 to report their interests and specified foreign financial assets by April if the total value of those assets exceeds an applicable threshold amount.

The reporting threshold varies depending on whether an individual lives in the US is married, or files a joint income tax return with their spouse. For example, a US citizen or a green card holder living in China needs to file the Form 8938 and report his or her foreign financial assets if their total value exceeds $200,000.

Failing to file the Form could result in a $10,000 fine, with an additional penalty of up to $50,000 for continued failure to file after IRS notification.

The IRS Beijing office said no figures are available at the moment as to how many US citizens have reported their assets located within China.

"I would not rule out the possibility that some wealthy Chinese will drop their immigration plans because of this," said Li Jiang, a senior immigration consultant with Can-Reach Pacific, a leading immigration agency in Beijing.

"The reporting threshold is not very high so many middle-class Chinese would be subject to the new Act, let alone business tycoons. Also, many people who migrate still spend most of their time running their business in China," Li said to the Global Times.

Not so voluntary

Amid a soaring federal deficit and to combat tax evasion, the US has stepped up efforts in recent years in tracking down citizens with offshore financial standings.

Between 2009 and last year, the IRS launched two Offshore Voluntary Disclosure Programs, which resulted in the disclosure of assets located in more than 140 countries by some 30,000 taxpayers.

As a result, the IRS pocketed some $270 million in taxes and penalties, which is only the tip of the iceberg. A report by the Senate estimated that wealthy US citizens evade paying some $70 billion in taxes annually using foreign accounts.

To ensure clear knowledge of US citizens' foreign accounts, the Act also requires that virtually every financial firm outside the US, as well as any foreign company in which Americans are beneficial owners, must register with the IRS starting in 2013, check for existing US citizen accounts, and annually declare their compliance.

Non-compliance will be punished with a withholding charge of up to 30 percent on any income and capital payments the company gets from the US.

The disclosure program has also stirred "concern" amongst Chinese immigrants in the US, according to the Beijing-based Legal Daily, which reported that some Taiwanese were even forced to give up their green cards in order to retain their assets at home.

"It is difficult to predict whether Chinese banks will comply with this requirement," Edmund Yang, a tax partner with the PricewaterhouseCoopers Beijing office, told the Global Times.

Cautious stance

Despite uncertainties, the number of US immigrant investors from China has been on the rise as the number of multi-millionaires has increased rapidly in China in recent years.

According to the latest statistics released in a United States Citizenship and Immigration Services Report, a total of 2,969 Chinese citizens have applied for the EB-5 visa (or green card), and 934 of them have been granted, accounting for nearly three-quarters of this year's US immigrant investors.

The number is about 10 times that of 2007, when only 270 Chinese people applied, and 161 green cards were granted.

Results from a survey organized by the Hurun Research Institute and Bank of China between May and September of last year showed that nearly half of Chinese millionaires are considering emigrating abroad, while 14 percent have already emigrated or applied to do so.

"Those Chinese millionaires [who have emigrated to the US] may deem it comparatively more risky to not fully comply with US tax regulations, but this lesser appetite for risk may result in their paying more as US taxpayers," Yang told the Global Times.

Some immigration agencies interviewed by the Global Times, however, expressed a cautious stance in regards to the impact of the plan.

A consultant with Maslink Group said that it is routine practice for potential immigrants to declare their assets at home.

"The only change is that the US government has intensified its efforts recently, so the scale of the impact on the immigration market remains to be seen," he said.

Ji Hong, an immigration expert with the Chinese Academy of Social Sciences, said it is not necessary to hype up the phenomenon of China's rich emigrating abroad.

"The people may be gone but their business remains," Ji told the Global Times. "It is a normal occurrence that also happened in Taiwan Province and Singapore at a certain point."

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