China’s offshore trust tax crackdown could impact single stocks, BofA says

China is imposing a new rule to collect income tax on offshore trusts, which could pose short-term risks for certain shares as the payment deadline approaches, according to BofA Securities. Winni Wu, a China Equity Strategist at BofA Securities, told Reuters that offshore-listing private companies may be more scrutinized, while state-owned companies are likely less affected. The tax must be settled within 90 days, and the deadline for this offshore tax is October 22.

An example of the impact of this tax is the sudden sale of 259 million shares by the major shareholder of Chinese hotpot chain Haidilao, resulting in a 17% drop in its shares. Wu estimated that there is about a month left to observe the actual impact of this tax. The offshore trust tax collection could potentially lead to event risks on single stocks, but it is unlikely to be a dominant factor driving the Hong Kong market, Wu added.

Wu suggested that company owners and shareholders may be able to negotiate with the local tax bureau, as the tax liability can be quite high, making it unrealistic to expect individuals to immediately pay the entire amount. This crackdown is forcing wealthy Chinese individuals to reconsider their trust structures and investment holdings, according to Reuters, which cited lawyers and advisers.