China Signs Tax Information Exchange Agreement with Bermuda

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Dec. 3 – China recently signed a tax information exchange agreement (TIEA) with another tax haven, Bermuda, following the TIEA signing with the British Virgin Islands last year. The growing number of TIEAs signed by China show the country’s strong determination to curb capital flight.

Meeting yesterday at Camden, the Bermudian premier’s official location, delegates from the two jurisdictions signed a bilateral agreement committing to a full exchange of information on tax matters.

In a speech given after the signing, Bermudian Premier Paula Cox said that the negotiation of the TIEA generated a framework that will deepen the economic and commercial relations between the two jurisdictions and facilitate their outreach to other markets within Asia. The framework will also aid with the further regulatory cooperation between the two governments.

The Bermudian Ministry of Finance says that the TIEA will take effect once both governments have completed their respective domestic procedures for the ratification of the agreement.

China has been tightening its regulations on offshore Chinese companies that usually register themselves in distinct tax havens such as the British Virgin Islands, Cayman Islands and Bermuda. In 2009, China signed a TIEA with the BVIs and, according to a report on China’s major search agent Baidu, the new agreement allows the exchange of tax information including company account information, company owners, and shareholders’ personal information.

TIEA signings are likely to define offshore Chinese companies as Chinese resident enterprises. Once such a label is imposed on them, they will become tax residents with the obligation to complete required tax payments to the Chinese government. The increasing number of TIEAs may significantly reduce China’s round-tripping investment, curb domestic capital loss, and further regulate the government’s tax collection.