China plans to tax the ultra-rich for overseas investment gains

HONG KONG – China has started imposing a long-neglected tax on overseas investment gains of the country’s ultra-rich, according to people familiar with the matter.

Some wealthy individuals in major Chinese cities have been asked in recent months to conduct self-assessments or summoned by tax authorities for meetings to assess potential payments, including late payments from past years, the officials said. sources.

The move underscores the growing urgency within government to expand its revenue streams as land sales plummet and growth slows. It also aligns with President Xi Jinping’s “common prosperity” campaign aimed at creating a more equitable distribution of wealth in the world’s second-largest economy.

Those contacted face levies of up to 20 percent on investment gains, and some are also subject to penalties for late payment, the sources said, adding that the final amount is negotiable.

China’s tax policy also follows the 2018 implementation of the Common Reporting Standard (CRS), a global information-sharing system aimed at preventing tax evasion. Although local regulations have always stipulated that residents be taxed on worldwide income, including investment gains, this was rarely enforced until recently, the people said.

It is unclear how extensive these efforts will be or how long they will last, the sources said. Some of the targeted Chinese had at least US$10 million (S$13 million) in overseas assets, while others were shareholders in companies listed in Hong Kong and the United States, according to the sources.

China’s tax office did not respond to a request for comment.

Under the CRS, China automatically exchanges information with nearly 150 jurisdictions on accounts belonging to taxable persons in each member country over the past six years.

“China already has a trove of CRS data that tax authorities could easily mine to uncover collection opportunities,” said Patrick Yip, vice president of Deloitte China. “The potential for individual tax audits, compared to corporate tax audits, would be increasing. »

China’s wealthy have been in the spotlight since President Xi unleashed a multi-year crackdown that has ensnared the consumer internet, finance and real estate industries.

The campaign has shaken the confidence of the richest individuals in a country where a billionaire was named every few days in 2018. The Boston Consulting Group estimated at the time that of the country’s $24 trillion in personal wealth, about $1 trillion was held offshore. China has also seen an increase in emigration of wealthy citizens, with more than 1.2 million people leaving the country since 2021, according to United Nations data.

China’s tax revenue from January to August fell 2.6 percent from last year, to about 14.8 trillion yuan (S$2.7 trillion). Revenue from government land sales fell 25 percent to 2 trillion yuan, while tax revenue also fell 5.3 percent. Policymakers have announced a series of stimulus measures since late September to revive the economy, including pledging the biggest effort in years to swap local governments’ off-balance sheet debt to ease their financial burden .

Local officials have become more aggressive in going after companies for decades-old taxes as they try to plug a hole in municipal finances caused by the real estate downturn.

“In the future, the personal income tax law will be more strictly enforced,” said Peter Ni, a Shanghai-based partner and tax specialist at Zhong Lun Law Firm. the offshore income of these high-income earners will become a specific target for the tax administration. » BLOOMBERG