Global Gains, Local Taxes: China Tightens Rules on Overseas Stock Profits

Yahoo

11 hours ago

Mainland Chinese investors riding the U.S. bull marketfrom Tesla (NASDAQ:TSLA) to Microsoft (NASDAQ:MSFT)are getting unexpected phone calls. Local tax authorities have started enforcing a long-ignored rule: a 20% levy on global capital gains and dividends. If you've spent more than 183 days a year in China, you're a tax residentand now, you're on the hook. The rule isn't new. But for years, Beijing looked the other way. That's changing fast.
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What's triggered the clampdown? For starters, China needs cash. The central government raised its 2024 budget deficit to the highest in over three decades. Meanwhile, U.S. markets have soaredup over 60% since early 2022making now a tempting time to reel in offshore profits. China has had access to overseas bank data since it joined the OECD's Common Reporting Standard in 2018. In Hong Kong, banks routinely report account details for clients flagged as Chinese tax residents. Until recently, that information sat quietly. Now, it's being put to work.
But not all investors are affected equally. Those trading Hong Kong stocks via the Stock Connect program remain exempt from capital gains taxat least through 2027. Domestic trades are still tax-free too. That policy protects China's capital markets, even as the net tightens around overseas profits. For investors caught off guard, the sting is real. Unlike in the U.S., they can't offset past losses to reduce the bill. The message from Beijing is subtle but serious: if you've made money abroad, now's the time to settle up.
This article first appeared on GuruFocus.
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