Beijing has moved to tax offshore wealth held by mainland Chinese citizens, prompting wealthy individuals to rethink trust structures and investment holdings as capital-outflow scrutiny intensifies, lawyers and advisers told Reuters.
In late July, Chinese authorities overhauled rules to impose a 20 percent income tax on offshore trusts, and tax offices in cities including Beijing and Hangzhou have begun enforcing taxation on returns from offshore insurance policies. The new rules apply a 20 percent tax on the appreciation in value when shares, property, or other assets are transferred into offshore trusts, plus an annual 20 percent tax on income those trusts and the entities they control generate. Unpaid taxes on assets placed in trusts since January 2023, and on trust income received before 2026, must be reported within 90 days.
At stake is a pool of capital worth up to US$1.2 trillion held by mainland Chinese ultra-high-net-worth individuals, according to a Boston Consulting Group estimate cited by Reuters, much of it parked in Hong Kong, Singapore, and other low-tax jurisdictions. More than half of China’s super-rich use offshore family trusts to manage wealth, according to KPMG.
Advisers describe a scramble to assess liabilities and revise holdings. A Shanghai-based tax adviser said clients preparing for stock listings are considering unwinding trusts. A Singapore-based lawyer who advises high-net-worth clients said Chinese citizens with trusts are being told they must declare them; of more than 50 trust clients he advises, over half are preparing to declare assets and pay tax, while the rest are weighing whether to unwind their structures. Some clients may need to borrow against illiquid assets, including real estate, to cover tax bills.
Asia economist Carlos Casanova of Swiss private bank UBP said the measures “signal broader tax reforms as authorities seek diversified revenue sources,” as China’s property downturn weighs on provincial governments’ land-sale revenue.
References
New Straits Times – China tax crackdown forcing wealthy investors to assess offshore trusts
