The Chinese tax authorities have begun imposing a 20% personal income tax on the overseas insurance benefits held by mainland residents, such as those from Hong Kong. Cases of actual taxation have already appeared in Beijing and Hangzhou. Respondents stated that due to the tight financial situation of the Chinese Communist Party (CCP), they are cutting into private wealth, possibly starting with a “trial” in Beijing and Hangzhou to gauge public and market reactions before deciding whether to expand nationwide.
According to a report by Reuters on August 6, the tax authorities in Beijing and Hangzhou have imposed a 20% personal income tax on the profits generated from Hong Kong insurance policies, including bonuses and interest from pre-paid premiums. Following the news, the stock prices of financial institutions involved in Hong Kong’s insurance business, such as Ping An, HSBC, and AIA, have declined.
A report by Caixin on August 5 mentioned that the current tax collection cases are still isolated incidents and have not yet been standardized nationwide. The emergence of tax cases in Beijing and Hangzhou has brought the funds held in Hong Kong insurance accounts by mainland residents under the scrutiny of the Chinese tax authorities.
Mr. Lu, an insider in the Beijing financial sector, informed Epoch Times that the CCP’s tax supervision over overseas assets is expanding, focusing on Hong Kong insurance as a starting point to observe the reactions from potential customers planning to purchase Hong Kong policies in mainland China.
Ms. Liu, an industry insider in the Hong Kong life insurance sector, revealed that mainland residents in Beijing and Hangzhou have faced cases where the profits and interest from Hong Kong insurance policies were subject to a 20% personal income tax. Consequently, stock prices of Ping An and HSBC in the London stock market declined as well.
She stated, “Considering the new tax regulations introduced by the CCP recently, it is only a matter of time before overseas savings insurance benefits are taxed. Currently, we are only seeing individual cases, and I believe officials are waiting to gauge market responses. Given the significant number of individuals and the scale of funds involved in overseas policies, the implementation is likely to be gradual.”
Hong Kong insurance has long been a crucial channel for mainland residents to allocate overseas assets. Mr. Wong, a consultant at a foreign insurance company in Hong Kong, disclosed to Epoch Times that over the past decade, about 90% of policyholders of bonus insurance policies in Hong Kong are from mainland China. They transfer funds abroad through purchasing annuities or making lump-sum premium payments.
He recalled, “Since 2014, mainland customers coming to Hong Kong for insurance have made substantial premium payments, and the details are significant. Following the pandemic restrictions, insurance companies introduced pre-paid premiums with an annual interest return of 4 to 5%. Such earnings might be considered insurance income in mainland China, subject to a 20% tax.”
Since 2018, the CCP has been implementing financial account information exchanges with economic entities like Hong Kong based on common reporting standards. The normalization of data exchanges on overseas financial accounts, insurance contracts, and other assets has provided the Chinese tax authorities with more information on the overseas income and assets of mainland residents. In recent years, supervision has also extended to cross-border assets such as offshore securities investments and trusts, with Hong Kong insurance now falling within the tax collection scope.
Ms. Wu, a life insurance consultant at Ping An in mainland China, told reporters that the authorities are encouraging people to purchase domestic insurance, primarily to attract these customers back to the country.
She expressed, “From a local financial perspective, funds are indeed tight now. Land sales revenue has decreased, domestic consumption is weak, infrastructure investment has nearly halted, and the tax authorities need to achieve their targets. Therefore, including Hong Kong insurance benefits in the tax scope is just a matter of time, albeit showing poor optics.”
On July 24, the Chinese Taxation Administration issued a notice on matters related to individual income tax on offshore trust. Offshore trust refers to trusts established under foreign laws or other legal arrangements with trust functions. Individuals in China transferring assets to offshore trusts or deriving income through them must report and pay personal income tax.
The notice requires relevant taxpayers to declare any outstanding taxes within 90 days from the effective date. Failure to do so may result in tax collection, imposition of overdue fines, and penalties. With both Hong Kong insurance and offshore trusts now subject to taxation, the CCP’s tax pursuit targets the wealthy mainland individuals storing assets abroad.
Regarding this extensive taxation and fines targeting the wealthy mainland class, Guo Fang, a banking asset management consultant in mainland China, expressed to reporters that if overseas savings bonus policies are universally taxed at 20% income tax, whether similar domestic products should also be taxed will be an issue that authorities must address.
He commented, “Insurance companies like China Ping An and China Life sell savings bonus policies. If both domestic and foreign products of the same kind are taxed at 20% income tax, it will affect the sales and performance of domestic insurance companies. By initially implementing a few cases on overseas policy earnings and not on domestic policy earnings, they are likely testing the market response.”