AMINEWS FLASH - ASIA
Decmber 2010
 
     
 
Coming soon - The China-BVI TIEA
A Look into its Impact and Relevant Solutions
 
The governments of the PRC and the BVI signed a tax information exchange agreement (TIEA) on December 7, 2009. And now it is the time for this TIEA to come into force.
 
 
From December 31, 2010, the PRC government will have the same power as the BVI government has over the PRC government to request from the BVI government tax information about any person under tax examination or investigation. The BVI government has the obligation to obtain and provide such information to the PRC government, provided such information is present within the BVI, or in possession or control of a person subject to the jurisdiction of the BVI.
 
Because the BVI is the second primary jurisdiction for FDI into China, and many Chinese citizens use BVI entities to park their trading and other incomes, directly or indirectly hold FDI into China, or hold their overseas assets, the PRC-BVI TIEA is of great significance to shareholders or beneficial owners of such BVI companies.
 
Information to be Provided upon Request
(From the perspective of the PRC as the requesting party)
 
According to the TIEA, upon receipt of an information request from the PRC government, the BVI government has the obligation to obtain and provide:
  • Information held by banks, other financial institutions, and any person, including nominees and trustees, acting in an agency or fiduciary capacity;
  • Information regarding the legal and beneficiary ownership of companies, partnerships, trusts, foundations and other persons, including ownership information on such persons in an ownership chain; in the case of trusts, information on settlors, trustees, beneficiaries and protectors; and in the case of foundations, information on founders, members, beneficiaries and directors or other senior officers of the foundation.
Further, the BVI may allow representatives of the PRC government to enter the territory of the BVI to interview persons or examine records with the prior written consent of the persons concerned, at the request of the PRC government.
 
Impacts of this TIEA
In view of the information available for disclosure, the shareholders or the beneficial owners of BVI entities (companies, partnerships or trusts) may need to consider:
  1. Whether the BVI entity will be viewed as a PRC tax resident and is subject to PRC corporate income tax;
  2. Whether the personal incomes received by the shareholders or the beneficial owners or the nominees from the BVI entity shall pay or have paid their individual income taxes in China or somewhere else;
  3. Whether the indirect share transfer through the BVI SPV will be subject to PRC tax on the capital gain;
  4. Whether the assets put into the BVI entities have paid the taxes due, and so on.
Solutions Available for Consideration
Compliant tax planning is always a key when structuring international investments and other transactions. Several structures are available for consideration to address tax concerns and maintain confidentiality.
 
1. To address concerns with respect to PRC tax residence:
It helps the BVI entities not to be viewed as PRC tax residence, if these BVI entities appoint a local director or local directors accounting for a majority on the board of the BVI entity for implementing management out of China, as specified in the Memorandum and Articles of Association.
 
2. For confidentiality and other tax benefits:
  (1) Put a BVI entity under a trust or foundation:
 
By separating the jurisdiction of the trust or the private foundation from that of the BVI entity, the trust or private foundation can create more confidentiality and more benefits in succession and tax (CFC rule, tax residence, etc) planning.
Notes: The original shareholder of existing BVI entities or new investor will become the settlor of the trust or the founder of the foundation by setting up the trust or foundation and contributing shares of BVI entities to the trust or foundation. The trust or foundation will own the shares of the BVI entity. The trust will be managed by the trustee and the foundation by the Board of Directors. The beneficiaries for receiving the trust or foundation distribution will be appointed by the settlor or founder.
 
  (2) Investment into a BVI entity via a collective investment fund
 
As illustrated below, an existing BVI entity can be converted into a subsidiary under a collective investment fund (an Amicorp fund vehicle). Investors can also make new investments through this collective investment fund vehicle, whether the underlying entity is located in the BVI or another jurisdiction.

According to the PRC-BVI TIEA, the public collective investment fund can be an exception to the obligation to obtain and provide ownership information thereof.
Notes: The collective investment fund owns substantial substance with multiple investors and multiple underlying investments. The fund will own the investments under the BVI entities and carry out transactions in its own name, and each investor will subscribe and hold a class of shares or a segregated cell with specific strategies and interests. Utilization of this fund will ensure that the necessary substance is in place for tax planning purpose and that each investor’s investment strategy is well implemented and its interests and confidentiality well protected.
 
  (3) Listing a BVI entity at a recognized stock exchange:
 
According to the PRC-BVI TIEA, the publicly traded companies can be an exception to the obligation to obtain and provide ownership information thereof.

As illustrated below, Amicorp can help clients to list their existing BVI entities or new entities (either in BVI or other jurisdictions) at a public stock exchange named DCSX, through collaboration with lawyers or other advisors if necessary.
 
How Amicorp Can Assist You
The Amicorp Group is a global corporate, trust and fund service provider. With over 500 specialists in 24 offices in 20 jurisdictions, Amicorp provides all supporting services connected with:
  • Company setup, management and administration
  • Trust set up and trustee service
  • Fund set up and administration, etc.
Amicorp does not provide legal or tax advice. Amicorp recommend clients to seek appropriate legal, tax or other professional advice on the particular facts and circumstances at issue.
 
 
Derk Scheltema
Amicorp Shanghai
d.scheltema@amicorp.com
  Kit-wah Poon
Amicorp Hong Kong
c.poon@amicorp.com
  Deqi Chen
Amicorp Shanghai
d.chen@amicorp.com
         
Boon Kheng Chew
Amicorp Singapore
b.chew@amicorp.com
       
 
 
 
 
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