China’s richest man is among a number of very wealthy Chinese who have renounced their US green cards or citizenships to avoid taxes under a law that went into effect in March 2010.
Zhong Qinghou, founder and chairman of the Wahaha beverage and food conglomerate, recently renounced his permanent US residency in an apparent effort at avoiding the disclosures made mandatory under the Foreign Account Tax Compliance Act signed into law by President Obama in March 2010. Its disclosure requirements went into effect this January.
The Foreign Account Tax Compliance Act (FATCA), which targets income earned overseas by US citizens and permanent residents, requires those with more than $50,000 in overseas assets, or those who reside abroad with assets of over US$200,000, to disclose them to the IRS and be subject to applicable taxes.
FATCA also requires foreign banks and financial entities with branches in the US to aid enforcement by ferreting out US citizens and residents among depositors and providing account information for those with deposits of over $50,000. To induce foreign institutions to comply, FATCA threatens them with a 30% withholding tax on income from their US financial assets.
FATCA and other efforts at stepping up disclosure and tax requirements on US citizens or green card holders has caused a surge in the numbers of wealthy people giving up their US residency or citizenship. Between 2008 and 2011 over 1,500 have renounced their US citizenships. Many had Chinese surnames, according to the IRS.
Easily the most prominent among them is Zong who has an estimated net worth of over $20 billion. However, Zong is likely to be subject to some tax liability to the US since citizens and permanent residents must pay a final tax assessment on the market value of their global assets on the day they give up their citizenship or residency status.
FATCA has been criticized as causing capital flight as well as being invasive of privacy for those with dual citizenships. Some question whether foreign institutions are likely to cooperate. In fact, FATCA has caused some European banks like Deutsche Bank, Commerzbank, HSBC, ING Group and Credit Suisse to cloose brokerage accounts for all US customers since early 2011, blaming it on “onerous” US regulations.
The IRS has been trying to address some of these criticisms. In late 2011 it announced that FATCA would be made simpler for many expatriates.
On the other hand, FATCA supporters say the law will raise about $800 million in new revenues. Critics respond by pointing out that the cost of implementation and enforcement could amount to hundreds of millions or even up to $10 billion. Much of these costs would be borne by foreign banks, giving them more reason possibly to withdraw from US operations.
