U.S.-China Tax Issues for Dual-Status Taxpayers: Tax Planning and Compliance Requirements, Treaty Operations

Description

Economic interactions between citizens of the People's Republic of China (PRC) (including Hong Kong) and the United States continue to expand, and these interactions create planning opportunities and tax obligations in both countries. In many instances, these considerations extend to other countries in the "Pacific Rim."

For Chinese citizens, a key consideration is offshoring of assets accumulated in China. Chinese residents have long sought to move capital out of the PRC for purposes of asset protection. While Australia has generally been the preferred Pacific Rim spot for Chinese capital migration, the U.S. is increasingly seen as a destination for Chinese-domiciled capital, often as part of a pre-immigration strategy or in conjunction with children coming to the U.S. for university or post-graduate study.

Capital migration out of China faces several unique challenges, not least of which are strict capital controls designed to limit the amount of currency leaving the country. Trust law in China also presents particular wrinkles in intergenerational and transnational wealth transfers.

For U.S. taxpayers working in China, residence/domicile rules are complex, even by the standards of international tax law. U.S. citizens with a presence in China can be subject to harsh tax treatment if they run afoul of either U.S. or PRC's rules determining tax residence, or the often voluminous tax reporting obligations imposed by each country. Tax advisers serving clients with dual PRC/U.S. presence must understand the complexities of capital controls, tax residency rules, treatment of passive income sourced to the PRC, and tax information reporting duties of both countries.

Listen as our experienced panel provides a practical guide to the tax planning and reporting challenges of taxpayers with dual Chinese/U.S. presence.