With the push of economic globalization, cross-border financial activities are becoming increasingly frequent. Whether businesses are expanding overseas or individuals are engaged in global asset allocation, attention to international tax compliance policies is essential. Among them, CRS (Common Reporting Standard) and FATCA (Foreign Account Tax Compliance Act)have become key pillars of global tax regulation.

01 What is CRS? How Does it Impact Your Overseas Accounts?

CRS (Common Reporting Standard) was initiated by the Organisation for Economic Co-operation and Development (OECD), aiming to promote global tax transparency. The standard requires financial institutions in participating countries to identify the accounts of non-resident taxpayers based on a uniform standard and report the relevant data to the local tax authorities, which then exchange the information cross-border.

This means:

✅ Countries around the world are working together to combat tax evasion and strengthen tax regulation;

✅ Your overseas financial account information will automatically be sent back to your tax residence country;

✅ Both individuals and businesses must focus on CRS compliance requirements to avoid potential legal and financial risks.

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FATCA: Global Tax Regulation for U.S. Citizens

As early as 2010, the U.S. introduced FATCA (Foreign Account Tax Compliance Act), requiring global financial institutions to report relevant overseas account information of U.S. taxpayers (including U.S. citizens, green card holders, and U.S. tax residents) to the Internal Revenue Service (IRS). The implementation of FATCA has significantly increased the regulation of U.S. citizens’ financial activities worldwide, making tax evasion much harder.

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CRS & FATCA: Global Tax Transparency Trend, Can’t Be Ignored!

With the widespread implementation of CRS and FATCA, the global tax environment is undergoing profound changes.

If you are:

An individual with overseas accounts or investments — you need to understand how CRS affects your tax reporting;

A business engaged in cross-border operations — ensure compliance to avoid penalties for unreported tax information;

A high-net-worth individual or international investor — reasonable tax planning will help optimize your global asset allocation.

02 CRS Compliance Obligations and Regulatory Impact

CRS Reporting Entities: Who Needs to Fulfill Compliance Obligations?

CRS requires all participating countries and regions to ensure that financial institutions (FIs) within their jurisdiction develop policies and procedures based on local laws to conduct due diligence on accounts opened with them and identify non-resident financial accounts. Information about qualifying accounts must be recorded and reported to the tax authority, which then exchanges this information with tax authorities in other participating countries.

CRS is not an independent law, but part of the AE3I (Automatic Exchange of Financial Information)standard, which includes:

MCAA (Multilateral Competent Authority Agreement): Regulates the cross-border information exchange cooperation process between countries;

CRS (Common Reporting Standard): Specifies how tax authorities should guide financial institutions to collect information that meets MCAA standards and report it.

Applicable Financial Institutions

CRS reporting entities typically include the following financial institutions:

Custodial Institutions: Such as banks, securities companies, etc., which hold and manage financial assets;

Depository Institutions: Such as commercial banks, credit unions, etc., with deposits as their primary business;

Investment Entities: Such as funds, fund management companies, asset management organizations, etc.;

Specified Insurance Companies: Insurance companies providing investment-related insurance products.

03 How Does CRS Affect Cross-Border Financial Accounts?

Financial institutions must conduct due diligence, identify non-resident tax accounts, and report the account information to local tax authorities;

There will be an automatic exchange of information between tax authorities to ensure that they are aware of their residents’ financial assets abroad;

Global tax regulation is becoming stricter, and large cross-border assets and hidden overseas accounts face increased compliance risks.

As of 2024, 142 countries and regions have committed to implementing CRS, with the core goal of increasing tax transparency through enhanced international cooperation to crack down on tax evasion through cross-border financial accounts.

04 Scope of CRS Information Exchange

Currently, CRS exchanges mainly financial assets information, such as: 

Bank deposits, securities, funds, bonds, trust assets, etc. 

However, non-financial assets (such as real estate, jewelry, antiques, paintings, etc.) are not part of the CRS exchange scope.

CRS compliance is a global trend, and cross-border investors and high-net-worth individuals should plan their taxes early to ensure asset security and compliance.

Common CRS Questions & Answers

Q

Does CRS mean global taxation?

A

CRS is just a treaty for information exchange between signatory countries/regions. Two countries (or regions) need to meet two conditions to exchange information: first, both must be signatories of CRS, and second, both must “voluntarily match” to exchange tax information.

Q

Does CRS mean all personal assets must be exposed?

A

No, physical assets such as overseas real estate, yachts, art, jewelry, and cash held in an individual’s name are not considered part of financial accounts and will not be reported. Life insurance policies or critical illness insurance also do not need to be reported, so there is no exposure to CRS.

Q

Does the exchange of information mean I have to pay taxes?

A

Exchanging information does not mean you must pay taxes on identified assets. It’s essential to first review and verify the assets to determine which ones are already taxed, exempt from tax, or require taxation.

Q

What happens if CRS reporting is not done on time?

A

Financial institutions failing to meet CRS/FATCA obligations may face penalties, including but not limited to:

1. Fines: Institutions that fail to complete CRS registration on time may face economic fines. The fine amount varies depending on the jurisdiction and the severity and duration of the violation. For example, the Cayman Islands imposes a fine of up to 37,500 KYD (approximately CNY 325,000) for entities that fail to complete CRS registration.

2.  Listed on Non-compliant List

3.  Loss of Tax Treaty Benefits

4.  Account Freezing or Closure

5.  Legal Actions or Criminal Liability

6.  Business Restrictions

Global tax transparency is the inevitable trend!

The above-mentioned complex matters regarding cross-border asset transfers, asset allocation, and those closely tied to law and tax require the expertise of professional tax advisors and lawyers. Consult with our experts to ensure that you can achieve secure family wealth succession and sustainable growth in the complex and ever-changing international tax and legal environment, while effectively addressing cross-border tax compliance challenges.