China is reportedly dramatically tightening tax collections on overseas assets as its fiscal woes deepen. There are cases of retroactively collecting taxes on income from overseas real estate, stocks, trusts, and virtual assets going back decades, leading to analysis that a full-scale tax crackdown targeting high-net-worth individuals is underway.
The Financial Times (FT) reported on the 5th (local time), citing multiple Chinese bank officials, family office figures, and tax experts, that China's tax authorities are massively expanding investigations into unreported income and capital gains from overseas assets.
According to the report, the probe covers not only capital gains from overseas real estate, stocks, precious metals, and virtual asset investments, but also asset management via overseas trusts, and in some cases the review has gone back to 2000. FT said Chinese banks in recent months have been working with tax authorities to check clients' overseas investment records, adding, "There are more instances of deposit accounts being frozen until tax payment on overseas capital gains is verified."
The move comes as the Chinese government broadens the tax net on overseas financial assets. The Ministry of Finance and the State Taxation Administration last month released rules tightening taxation on income from assets transferred to overseas trusts. Under the new rules, income from overseas trusts is subject to a 20% tax. According to local Chinese media, authorities have also recently begun imposing a 20% tax on dividends and interest from overseas insurance products.
The tougher taxation appears to be driving a surge in China's personal income tax revenue. According to the South China Morning Post (SCMP), personal income tax revenue for the first half of this year, released last month by the Ministry of Finance, totaled 898.2 billion yuan (about 189 trillion won), up 13.1% from a year earlier. Notably, the personal income tax growth rate outpaced China's income growth rate by 8 percentage points. SCMP said, "The sharp rise in personal income tax revenue is the result of tougher taxation targeting high-net-worth individuals."
Worsening fiscal conditions are cited as the backdrop to China's tax crackdown. China's fiscal revenue relies heavily on tax income, but according to the FT, tax receipts have been effectively flat since COVID-19. Revenue from land-use right sales, once a key pillar of public finances, has plunged amid the real estate slump, and fiscal pressure on local governments is mounting. Victor Shih, a professor at the University of California, San Diego, said, "The motive for this move is clearly to shore up finances."
Experts said the measure goes beyond simply boosting tax receipts and reflects Beijing's push to tighten controls on capital outflows. The head of an immigration consulting firm with offices in China and the United States told the FT, "Those surveyed will expand to people holding large financial assets in overseas bank accounts, including Hong Kong, and ultimately to other overseas assets, including overseas real estate."