October 22nd is the deadline set by the CCP for reporting offshore trust income. Wealthy individuals are hastening to deal with offshore assets, with commentators believing that this “killing the goose for the eggs” approach by the CCP will prompt capital and talent to vote with their feet.
Since the beginning of this year, the CCP has intensified its efforts in tracking down the overseas assets of the wealthy. On July 24th, the announcement “Regarding Onshore Individual Income Tax Matters Related to Offshore Trusts” was issued, requiring Chinese tax residents involved in offshore trusts to declare related assets and income, and to settle past unpaid taxes by the deadline of October 22nd. According to the new regulations, the income tax rate for the transfer of trust assets and related income meeting the conditions is set at 20%.
Oscar Liu, CEO of wealth advisory company JLT Legacy Group, stated that the founders of Chinese companies listed in Hong Kong and the United States are being hit hardest by the latest tax policies, as many of them sold shares through trusts at the peak of company valuations between 2014 and 2020.
Liu said, “We estimate that the amount of tax due for individual cases could range from millions to billions of Chinese yuan, or even tens of billions of Chinese yuan.” Liu’s company has offices in Hong Kong and Singapore.
The scope of tax collection may not be limited to offshore trusts, but also includes investment income obtained by Chinese tax residents through overseas brokerages. In a case reported by the Australian News Network, a textile business owner from Guangdong, surnamed Zhao, who has long been trading stocks in international markets through an overseas brokerage account, received a notice from the tax authorities in August this year demanding payment of $1.9 million in taxes related to overseas trading profits. He plans to file an objection and hopes the tax authority will recheck the calculations.
According to Reuters, as the deadline approaches, wealth management centers such as Singapore and Hong Kong, which have long served as destinations for Chinese wealthy funds, are facing new uncertainties.
Asian Private Banker reported that family offices and financial advisors across Asia are accelerating trust audits for Chinese ultra-high net worth clients. Candice Wu, Co-Founder of Tigris Family Office, stated that financial advisors need to assist clients in reorganizing trust asset lists, historical distribution records, beneficiary information, and relevant transaction documents, and confirm which payments may be deemed taxable income. Since many trusts were established years ago and the information may not have been stored in a manner compliant with the latest tax reporting requirements, they now must reconstruct historical records within a limited time frame, increasing legal, accounting, and administrative costs.
Chen Yishen, Chairman of the Business Law Committee of the Taipei Bar Association in Taiwan, wrote on October 17th that the collapse of the real estate bubble in China has led to the depletion of local government land sale revenue. In addition to extensive exploitation of private enterprises across provinces domestically, the CCP is now turning its blade overseas, with tax special units directly targeting major shareholders who cashed out between 2014 and 2020 through US and Hong Kong listings, presenting them with sky-high tax bills ranging from hundreds of millions to tens of billions of Chinese yuan, scaring China’s super-rich into a frantic rush to dissolve offshore trusts, sell equity, and pledge securities for cash even moving swiftly to renounce Chinese nationality to completely sever the tax inspection hands.
The article raises questions: When a regime uses “common prosperity” as a fig leaf for plundering private property, and even family trusts stashed in tax havens in Hong Kong and overseas can be chased down for old debts, which bourgeoisie would dare risk their lives and fortunes in such a system lacking any protection of private property rights? Xi Jinping may think that by globally cracking down on tax evasion, he can plug the fiscal black hole, not realizing that capital and talent will always vote with their feet. This thuggish money-grabbing approach of killing the goose for the eggs, besides momentarily collecting some bloody tax payments, will only force the final batch of elites, who control the funds and business networks, to escape entirely with their money, accelerating the already severely weakened Chinese economy towards comprehensive drying up.