[Edaily Reporter Bang Sung Hoon ] China’s wealthy are shifting their overseas assets to U.S. banks. As the Chinese government expands its tax net over overseas assets, they are turning to the U.S. as a safe haven where account information is not shared with Chinese authorities.

According to CNBC on the 22nd (local time), private bankers and lawyers serving Chinese clients reported a significant increase in inquiries about opening U.S. bank accounts since the Chinese government introduced retroactive taxation on overseas assets last July. The goal is to move assets held in Singapore or Hong Kong to the U.S. to keep them out of the reach of Chinese authorities.

Last July, Chinese authorities announced they would impose a 20% tax on the income and profits from overseas trusts held by Chinese tax residents. Since then, lawyers in Singapore and Hong Kong have been busy calculating the taxes their clients owe and assisting them in raising the substantial sums required—through measures such as dissolving trusts, selling publicly traded stocks, and applying for loans.

Keith Tan, CEO of Singapore-based asset management firm Golden Acacia Capital, said, “(Moving assets to the U.S.) has become quite common,” adding, “The barrier for Chinese clients to open U.S. accounts and transfer assets is not that high.” His clients began preparing to move to the U.S. in July, and some opened accounts in less than two months. He explained that high-net-worth individuals primarily turn to large private banks, while clients with smaller portfolios seek out regional banks or online brokerage firms.

The U.S. is considered a safe haven because it has not joined the “Common Reporting Standard” (CRS), the Organization for Economic Cooperation and Development’s (OECD) system for the automatic exchange of financial information. Over 100 countries and regions participate in the CRS, automatically exchanging financial account information. While banks in Singapore and Hong Kong are required to report China-related accounts to Chinese authorities, U.S. banks have no such obligation.

The U.S. requires foreign banks to report information on U.S. clients under the Foreign Account Tax Compliance Act (FATCA). However, there is no mechanism in place for U.S. banks to automatically transfer information to China.

New York banks are seizing this opportunity. A New York-based wealth management advisor who assists Chinese family offices said, “With inquiries surging, some banks have shortened the deadline for clients to meet the minimum deposit requirement.”

Chinese families with children who hold U.S. permanent residency are establishing “foreign settlor trusts” in low-tax states like Nevada and Florida to reduce their tax burden in the United States as well. Clifford Ng, a partner at Hong Kong’s Zhonglun Law Firm, predicted that among those with residency in Hong Kong or Singapore, even those whose trusts have not yet been reported to China will likely terminate their trusts and withdraw their funds.

However, lawyers warn that this method may be only temporary. Partner Ng pointed out, “They’re banking on the fact that they can evade tax authorities thanks to the U.S., which does not share information under the CRS,” adding, “Hiding assets is not tax planning.”

Funds already held overseas have likely been reported to China via the CRS. This means that the flow of funds from Singapore and Hong Kong to the U.S. is bound to be revealed as well.

James Wang, CEO of tax advisory firm Bluebrick Consulting Group, noted that non-residents in the U.S. can find investment vehicles to reduce or avoid the burden of filing with the Internal Revenue Service (IRS). However, he pointed out that under China’s new regulations, residents for Chinese tax purposes must self-report their worldwide income. This means that growing wealth in unreported overseas accounts still constitutes a violation of the regulations.

Chris Qiao, a partner at the Beijing-based law firm W&H, also said, “Even if all funds are transferred from accounts reported under the CRS to U.S. accounts, the tax authorities’ authority to tax or the taxpayer’s obligation to pay taxes does not disappear,” adding, “The record of the funds leaving the country alone is sufficient grounds for taxation.”

There are also observations that the channels for moving money out of mainland China have effectively been blocked. Lin Jingquan, a private banker at Bank of Singapore, predicted, “Going forward, it will be nearly impossible for large sums of money from mainland China to leave the country.”