China tax crackdown forces wealthy investors to assess offshore trusts
AgenciesA growing campaign to tax offshore wealth is forcing wealthy Chinese people to rethink their trust structures and investment holdings, lawyers and advisors say, as Beijing...
A crackdown on offshore tax evasion in China is compelling some wealthy individuals to reassess their trust structures and investment portfolios, according to lawyers and advisors. Beijing has recently implemented a 20 percent income tax on offshore trusts and is beginning to tax returns from offshore insurance policies in major cities like Beijing and Hangzhou. This move has prompted concerns that China may expand its tax crackdown on offshore wealth.
The majority of China's super-rich individuals utilize offshore family trusts to manage their assets, resulting in a potential $1.2 trillion in capital held in jurisdictions such as Hong Kong and Singapore. David Luo, a tax partner at Zhonghua Certified Public Accountants, stated that these offshore trusts will impose significant burdens on maintaining trust structures. Before the new tax rules, offshore trusts operated in a regulatory gray area without a standardized regime.
The new tax rules apply a 20 percent tax on the appreciation of value upon transferring assets into offshore trusts and annually tax income from such trusts and offshore entities controlling them at 20 percent. Unpaid taxes on assets placed in trusts since 2023 and on trust income received before 2026 must be reported within 90 days. Lawyers and advisors advise affected clients to prepare for unwinding trusts or liquidating assets to meet their tax obligations.
Some wealthy Chinese individuals are considering unwinding their trusts or liquidating mainland A-shares to raise cash due to recent market volatility. The broader concern among wealthy Chinese is not the immediate tax bill but what may come next, as Chinese authorities appear to be intensifying their tax enforcement efforts.
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