Beijing October 15 2024: China has begun enforcing a long-overlooked tax on overseas investment gains by the country’s ultra-rich, according to people familiar with the matter.
Some wealthy individuals in major Chinese cities were told in recent months to conduct self-assessments or have been summoned by the tax authorities for meetings to evaluate potential payments, including those in arrears from past years, said the people.
The move underscores growing urgency within the government to expand its sources of revenue as land sales tumble and growth slows. It also aligns with Chinese President Xi Jinping’s “common prosperity” campaign to create a more equal distribution of wealth in the world’s second-largest economy.
The individuals contacted are facing up to 20 per cent levies on investment gains, and some are also subject to penalties on overdue payments, said the people, adding that the final amount is negotiable.
China’s tax push also follows its 2018 implementation of the Common Reporting Standard (CRS), a global information-sharing system aimed at preventing tax evasion. While local regulations always stipulated that residents be taxed on worldwide income, including investment gains, it has rarely been enforced until recently, said the people.
It is unclear how widespread the efforts are and how long they will last, the people said. Some of the targeted Chinese had at least US$10 million (S$13 million) in offshore assets, while others were shareholders of companies listed in Hong Kong and the United States, according to the people.
China’s tax bureau didn’t respond to a request for comment.
Under the CRS, China has been automatically exchanging information with nearly 150 jurisdictions about accounts belonging to people subject to taxes in each member country for the past six years.
“China already has a treasure trove of CRS data which the tax authorities could readily mine to uncover collection opportunities,” said Mr Patrick Yip, Deloitte China’s vice-chairman. “The potential for individual tax audits, relative to enterprise tax audits, would be on the rise.”
China’s wealthy have been under the spotlight since Mr Xi unleashed a multi-year crackdown that ensnared the consumer internet, finance and property sectors.
The campaign dented the confidence of the richest individuals in a country where a billionaire was being minted every few days in 2018. Boston Consulting Group estimated around the time that of the nation’s US$24 trillion in personal wealth, about US$1 trillion was held abroad. China has also seen a spike in emigration by affluent citizens, with more than 1.2 million people leaving the country since 2021, according to United Nations data.
China’s fiscal revenue from January through August fell 2.6 per cent from 2023 to about 14.8 trillion yuan (S$2.7 trillion). Government land sales income dropped 25 per cent to two trillion yuan, while tax revenue also dipped 5.3 per cent. Policymakers announced a swath of stimulus measures since late September to revive the economy, including pledges to make the largest effort in years to swap local governments’ off-balance sheet debt to ease their financial burden.
Local officials have become more aggressive in chasing companies for taxes dating back decades as they try to plug a hole in municipal finances caused by the housing downturn.
Shanghai-based partner and tax specialist at Zhong Lun Law Firm, Mr Peter Ni, said: “Going forward, there will be stricter enforcement of the individual income tax law.
“Eventually, offshore income of those high-income individuals will become a specific target for the tax authority.” BLOOMBERG
