Starting from October 22nd, the Chinese authorities will impose a 20% tax on dividends and interest obtained by Chinese billionaires through offshore trusts. From Hong Kong and Singapore to Japan, Chinese billionaires are beginning to reassess their offshore trusts and overseas investments.
The tax department of the Chinese Communist Party is requiring some affluent individuals to declare the income generated from offshore trusts such as dividends and interest, with a tax rate of 20%. According to the announced arrangements, certain historical tax issues from 2023 to 2025 must be addressed within a 90-day transitional period, ending on October 22nd.
However, as reported by the Financial Times, the actual scope of review may exceed the years disclosed by the authorities. The report cited officials, bankers, and wealth management consultants who mentioned that some overseas investment records could even be traced back to around the year 2000.
Domestic banks and other financial institutions in China are also being tasked with scrutinizing the overseas investments of some affluent clients to ensure that their relevant income has been reported to the tax authorities.
A Chinese technology investor, who wishes to remain anonymous, revealed that he and some high-net-worth individuals around him were caught off guard by the new regulations covering their major offshore assets and income from previous years.
He believes that the Chinese authorities may have access to individuals’ overseas investment situations, potentially penetrating the trust structures that were previously thought to provide isolation. This investor deduced that the relevant departments “have likely been preparing for this for a long time.”
Reportedly, the pressure felt by some entrepreneurs does not only come from the tax department. Informed sources disclosed that executives of a Beijing-based internet company have been questioned by the local development and reform department and other government agencies regarding tax issues.
Data from the Boston Consulting Group (BCG) shows that cross-border wealth managed in Hong Kong reached $2.9 trillion last year. For many Chinese billionaires, Hong Kong serves as a vital financial center for arranging overseas stocks, trusts, and family assets.
Yu Liangheng, Senior Partner of Hong Kong Prosperous Trust Services, has been providing cross-border wealth and inheritance planning advice for families with ties to China for a long time. Following the announcement of the new regulations, he received numerous inquiries from clients and spent the entire weekend addressing related issues. Clients need clarification on which historical earnings need to be declared, whether trust structures may be subject to review, and how to raise tax funds within the deadline, prompting a reevaluation of asset arrangements built over the years.
In recent years, Singapore has attracted many wealthy Chinese families to establish family offices, purchase luxury homes, and manage global assets locally. Shen Muying, head of private wealth at the Singapore law firm Wong Partnership, stated that many clients originally believed that moving to Singapore and setting up trusts could help them avoid further tax payments in China.
A case that has garnered attention recently is the asset arrangement of Zhang Yong and Shu Ping, co-founders of Haidilao. The couple has obtained Singaporean citizenship and set up a family office there. Forbes estimates their combined wealth to exceed $7 billion.
In September of this year, Shu Ping sold Haidilao stocks worth over $350 million. Following the announcement, the company’s stock price dropped by approximately 12%. While the company did not disclose the reason for the sale, some analysts speculate that the transaction might be related to tax obligations, though there is currently no evidence confirming the connection.
Over the past few years, many affluent Chinese individuals have been purchasing high-end real estate in Japan, with places like Tokyo, Osaka, and Niseko in Hokkaido being popular property investment destinations. Some have also acquired non-listed businesses such as sake breweries.
A Chinese female entrepreneur running a technology investment company in Tokyo shared that a year ago, discussions with Chinese friends primarily revolved around which properties were worth buying, how to arrange for family members to move to Japan, and which schools to choose for their children. However, now the conversations have shifted towards tax matters. She mentioned that her friends are deliberating on the potential impact of overseas wealth being traced and whether staying in Japan is still financially viable.
Wealth management consultants in Singapore have stated that some clients are exploring transferring assets to Taiwan or the United States. In particular, the absence of the Common Reporting Standard (CRS) promoted by the Organization for Economic Co-operation and Development (OECD) in the US has piqued the interest of some clients.
Nonetheless, transferring assets does not automatically absolve the original tax obligations. Whether reporting to China is necessary still depends on tax residency status, income nature, and applicable regulations. Currently, no information confirms that a significant amount of assets has been transferred to Taiwan or the US.