Wealthy Chinese individuals concerned about Beijing’s expanding scrutiny of overseas wealth are increasingly turning to the United States to safeguard their money, according to private bankers and lawyers working with Chinese clients.
Inquiries about opening US bank accounts have risen in the months since Beijing imposed retroactive taxes on offshore wealth in July, prompting some clients to move assets previously held in Singapore or Hong Kong to the US.
“It has become relatively prevalent,” said Keith Tan, CEO of Singapore-based Golden Acacia Capital, who helps Chinese clients manage their offshore portfolios.
Tan said his clients began planning transfers to the US in July, with some opening accounts in less than two months.
“The hurdle is not that high for Chinese clients to open American accounts and transfer assets there,” he said.
Wealthier clients generally opt for large private banks, while those with smaller accounts turn to regional banks or online brokers, Tan added.
China’s offshore tax rules drive demand
The shift has gathered pace following China’s new tax regime targeting offshore trusts.
In July, authorities said income and gains from overseas trusts owned by Chinese tax residents would be taxed at 20%, triggering a rush for tax advice and alternative financial arrangements.
Lawyers in Singapore and Hong Kong have been helping clients calculate their tax liabilities, unwind trusts, sell shares in listed companies or apply for loans to meet substantial tax bills.
The US has become an attractive destination because it does not participate in the Organisation for Economic Co-operation and Development’s Common Reporting Standard (CRS), under which more than 100 jurisdictions automatically exchange financial account information.
Banks in Singapore and Hong Kong are required to report China-linked accounts to Beijing under the framework, while US banks have no equivalent obligation under the CRS.
James Wang, CEO of Blue Brick Consulting Group, a private-client tax advisory firm, said non-residents opening US bank accounts could also access investment vehicles with reduced or no tax-filing obligations to the Internal Revenue Service.
However, Wang noted that China’s latest regulations require individuals classified as Chinese tax residents to declare their worldwide income to Beijing.
Banks in New York are responding to the growing demand by offering services to Chinese clients seeking to limit their exposure to tax scrutiny, according to a New York-based wealth-planning adviser who works with Chinese family offices.
The adviser, who requested anonymity to discuss banking procedures, said some banks had shortened the period clients were given to meet minimum capital requirements before their accounts could be closed.
Tan said Chinese families with children holding US green cards had also used foreign grantor trusts, which are treated as owned by their non-American founders, to limit certain US tax exposures.
Low-tax states such as Nevada and Florida have become popular choices, he added.
“They are gambling on not being disclosed, because the US does not share information as part of the CRS system; they can dodge tax authorities,” said Clifford Ng, a partner at Hong Kong law firm Zhong Lun.
Ng also expects some clients with Hong Kong or Singapore residency, whose trusts have yet to attract Beijing’s attention, to unwind those arrangements and transfer their money elsewhere.
Lawyers warn US transfers may not avoid tax liabilities
Lawyers have cautioned that using US accounts to avoid disclosure may only offer temporary protection.
Ng said offshore assets held in Singapore or Hong Kong had probably already been reported to Beijing through the CRS, meaning the authorities could eventually discover them. Transfers to US banks could also leave a visible record as the money leaves the original accounts.
“They may still be in breach of the rules because they have an undisclosed offshore account that’s making money and they’re not declaring it onshore,” Ng said.
“Hiding is not tax planning.”
Washington’s Foreign Account Tax Compliance Act requires foreign banks to report accounts held by American taxpayers, but there is currently no equivalent automatic reporting arrangement requiring US banks to share account information with Beijing.
Cris Cao, a Beijing-based partner at W&H Law Firm, said moving money into US accounts would not automatically remove China’s right to tax the assets or the account holders’ obligation to pay.
“Even if they move all the money out of the CRS-reported accounts and into US bank accounts, that doesn’t naturally reduce or wipe out the tax authorities’ right to tax, or their obligation to pay,” he said.
Cao added that records of the transfers could provide grounds for the authorities to impose taxes.
“There was a record of it being transferred out,” he said, adding that “that alone is enough for the tax authorities to levy tax.”
The opportunity to move wealth abroad may also be narrowing. While transferring assets already held offshore is relatively straightforward, moving capital out of mainland China has become increasingly difficult.
“Nearly no sizeable money onshore will be able to leave the country from now on,” said Jingkuan Lin, a private banker at Bank of Singapore.
He expects the offshore banking industry to become increasingly focused on serving the existing pool of capital already outside China.
