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Wealthy Chinese Émigrés Face US Tax Man

FATCA makes safe haven in US an expensive proposition

By He Qinglian Created: March 5, 2013 Last Updated: March 5, 2013
Related articles: Opinion » Thinking About China
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The southern peninsula of St. Kitts island is shown in this file photo distributed by the St. Kitt’s Tourism Authority. U.S. tax attorneys are recommending St. Kitts to wealthy Chinese as a possible alternative to the United States for emigration. 

The southern peninsula of St. Kitts island is shown in this file photo distributed by the St. Kitt’s Tourism Authority. U.S. tax attorneys are recommending St. Kitts to wealthy Chinese as a possible alternative to the United States for emigration. 

The intimate connection between the United States and China can be seen through the impact of the Foreign Account Tax Compliance Act (FATCA) on rich people in China. 

On Feb. 14, the U.S. Department of Treasury announced a bilateral agreement with Switzerland to implement FATCA. This has generated quite a stir among Chinese elites, although their reactions are somewhat hidden from the outside world.

Overseas Tax Haven Disappearing 

FATCA was enacted in 2010. Under the act, U.S. taxpayers, including green card holders, holding financial assets outside the United States with an aggregate value exceeding $50,000 must report those assets to the IRS. 

In addition, the act requires foreign financial institutions to report directly to the IRS certain information about financial accounts held by U.S. taxpayers. Starting in 2014, foreign financial institutions will be penalized or face denial of entry to the U.S. market if they do not comply with the act. 

The U.S. Department of Treasury is engaging with more than 50 countries, including Taiwan, China, and Canada, in an attempt to implement FATCA through intergovernmental agreement (IGA). On Feb. 14, Switzerland became the newest country to sign the IGA. Since 2010, eight countries, including England, Denmark, Ireland, and Mexico, have signed the IGA. 

Since its enactment in 2010, FATCA has made offshore tax evasion much more difficult for some wealthy Americans. A Sing Tao Daily report said that from 2009 to 2011, 1,781 U.S. citizens voluntarily gave up their citizenship. 

Nigel Green, CEO of deVere Group, which provides financial services to people who give up their U.S. citizenship, said that in January, the number of clients inquiring about giving up U.S. citizenship to avoid taxes increased 48 percent compared to the same month last year. 

In 2009, actor Jet Lee gave up both his Chinese and U.S. citizenship to become a Singapore citizen. This shows that having U.S. citizenship is not as attractive as before.

Most wealthy Chinese are either corrupt officials or have colluded with corrupt officials.

According to the Federal Gazette, 1,100 Americans gave up their U.S. citizenship in the first three quarters of 2012 to escape FATCA. For example, Eduardo Saverin, one of the Facebook founders, was born in Brazil and moved to the United States in 1998. In September 2011, Saverin gave up his U.S. citizenship and became a Singapore citizen. 

Since there is no capital gains tax in Singapore, Saverin could save $100 million dollars in taxes. However, based on the Heroes Earnings Assistance and Relief Tax Act of 2008 (the HEART Act), if American citizens and permanent residents who have held green cards for eight of the last 15 years intend to permanently expatriate, they will be subjected to an “exit tax” if their total income tax reaches $125,000 in the last five years, or their net assets reach $2 million, or they cannot prove that they have paid all their taxes in the last five years.

U.S. Tickets Just Got Pricier 

Chinese people, especially political and financial elites, have immigrated to the United States in throngs. Professor Lin Zhe at the Central Party School disclosed during the National People’s Congress in March 2010 that over 1.18 million Chinese Communist Party (CCP) officials, their spouses, and children have relocated overseas from 1995 to 2005. 

Legal Evening News has drawn an immigration map of wealthy Chinese, showing where they have relocated, the overall distribution, and the amount of money invested. It concluded that of the US$10 billion being transferred annually overseas, 80 percent went to the United States, Canada, and Australia, and that the rest went to areas like Europe, Singapore, and Malaysia.

The final details of FACTA emerged in January this year. A few days ago, after I published the bilateral Swiss-U.S. agreement on Weibo, netizens gave the thumbs up, believing that “the United States is helping China to fight corruption.”

FATCA will teach wealthy Chinese how to be law-abiding citizens and pay their taxes.

For those “naked officials” and rich Chinese who have gathered their wealth through political clout, FATCA is a real pain. In China, these well-to-do elites have gotten used to enjoying special tax exemption privileges. Purchasing U.S. citizenship or permanent residence was merely a form of insurance, but the thought of dutifully paying taxes was out of the question. 

If they evade taxes in the United States, it would be a criminal offense. Thus, FATCA has greatly increased the chance of wealthy Chinese being held criminally accountable. To avoid a possible prison sentence in China, such people now must surrender large sums of dollars in tax to avoid going to prison in foreign countries. How could this be beneficial? So, naked Chinese officials and wealthy Chinese are greatly troubled.

In fact, it is much more difficult for rich Chinese to make a choice about FATCA than people of other countries. Most wealthy Chinese are either corrupt officials or have colluded with corrupt officials, making money in legal gray areas involving dark secrets. 

Though the Chinese regime’s current anti-corruption campaign is only a half-hearted effort, corrupt officials are always faced with unpredictable risks, as their colleagues, subordinates, and mistresses could easily be whistle blowers. So their real purpose of moving overseas is to avoid possible judicial punishment in China, not to have a better lifestyle. 

The United States is their preferred destination simply because any extradition agreement between the United States and China is farfetched, as China itself rejects all universal values. 

Thus, the United States has turned out to be the best hiding place. In other words, if these wealthy Chinese must surrender their U.S. citizenship or green card to avoid taxes, it would mean that these people must also give up the safest haven in the world.

Which country in the world could replace the United States as their safe haven? Canada, Australia, and other countries are tightening their immigration policies. So it is hard to say if one day all these countries could come up with something like FATCA. 

If raising children is not an issue, Singapore could become an attractive destination for wealthy Chinese. However, in recent years, Singapore has been unwilling to roll out its red carpet for Chinese immigrants. It is claimed that Chinese immigrants have become public enemy No. 1 in Singapore. 

Besides these countries, U.S. law firms have provided alternatives, such as the Federation of Saint Kitts and Nevis. I wonder how many people could pinpoint its exact location without looking on a map.

No Safe Haven 

With the enactment of FATCA, the United States has become a much more expensive hiding place for wealthy Chinese and naked officials. If they did truthfully declare all their assets and income in China, they would annually have to pay the 30 percent FATCA tax. This is mentally unacceptable because in China, they do not even have to pay for their lunch. The contrast is too big to swallow. 

In my opinion, FATCA is great because it teaches wealthy Chinese how to be socially responsible. In China, wealthy Chinese do not like to fulfill their social responsibilities, and they only want to make further gains after relocating to other countries. 

In their view, money and benefits from China and the United States should all be stuffed into their pockets, while social responsibilities in both countries should be completely neglected. At least FATCA will teach wealthy Chinese how to be law-abiding citizens and pay their taxes. 

They could surely learn a thing or two from wealthy Americans. In the past two years, the U.S. government has been faced with a serious financial difficulty. So 200 wealthy Americans wrote a letter to President Obama, asking the president to levy a heavier tax on them. If wealthy Chinese could do the same, there would no longer be deep hatred between the rich and the poor in China.

He Qinglian is a prominent Chinese author and economist. Currently based in the United States, she authored “China’s Pitfalls,” which concerns corruption in China’s economic reform of the 1990s, and “The Fog of Censorship: Media Control in China,” which addresses the manipulation and restriction of the press. She regularly writes on contemporary Chinese social and economic issues. 

Translated by Sophia Fang. 

Read Original Chinese article.

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