China is widening tax scrutiny of ultra-high-net-worth individuals’ overseas assets, targeting undeclared income and capital gains as authorities seek to boost revenue amid continued pressure from the property downturn.
China has expanded a tax-collection drive targeting undeclared income and capital gains from overseas assets held by ultra-high-net-worth individuals, as fiscal pressures deepen following the prolonged property market downturn.
Chinese authorities have reportedly instructed banks and other financial institutions to review wealthy clients’ overseas investment records and check whether related income has been declared. The scrutiny covers overseas real estate, stocks, precious metals and cryptocurrencies, with some investigations reaching back to 2000.
Authorities are also examining offshore trusts and overseas insurance products. New rules announced by China’s Ministry of Finance and the State Taxation Administration impose a 20% tax rate on gains from transferring stocks and real estate to offshore trusts, as well as interest and dividends generated through trusts. A 20% personal income tax is also being applied to dividends and interest from certain overseas insurance products.
The tighter enforcement has helped increase tax receipts. Personal income tax revenue reached CNY 898.2 billion in the first half of the year, up 13.1% year on year, compared with 5.3% growth in overall tax revenue.
The campaign comes as local government finances remain under pressure from the property slump. Revenue from state-owned land-use rights sales fell from CNY 8.7 trillion in 2021 to CNY 4.1518 trillion last year, and declined a further 31.5% year on year in the first half of this year.
The tougher approach has raised concerns among wealthy Chinese families about the predictability of tax rules and could encourage some to move assets or relocate overseas. One lawyer told the Financial Times, “With the use of artificial intelligence (AI), Chinese authorities can now analyse vast records of past investments faster and more cheaply than before,” adding, “As tax pressure intensified this year, at least six of my ultra-high-net-worth Chinese clients actually followed through on plans to leave China.”
