China's overseas income tax global crackdown expands beyond ultra-rich

Business Standard

2 days ago

China is intensifying efforts to collect taxes on citizens' overseas income, expanding its scrutiny to less wealthy individuals after targeting the ultra-rich last year, according to people familiar with the matter.
Officials are now scrutinizing a broad range of offshore income, including investment returns, dividends and employee stock options, said the people, asking not to be identified discussing private information. Investment gains can be taxed as much as 20 per cent.
Tax service providers have seen a surge in inquiries in recent months from clients with less than $1 million in assets, a notable shift from last year's crackdown that largely targeted individuals with at least $10 million. Chinese residents with offshore investments, especially in US and Hong Kong stocks, are a key focus of the tax authorities, one of the people added.
The State Taxation Administration didn't immediately respond to a request for comment.
At the same time, Chinese investors have been shifting more wealth overseas as the economy has struggled and after a crackdown on private enterprise. President Xi Jinping's push for 'common prosperity' has also dented confidence, though the Chinese leader has recently made a high-profile push to shore up confidence among entrepreneurs.
Mainland investors have poured about HK$658 billion ($83.9 billion) into Hong Kong-listed stocks via the cross-border trading link so far this year, according to Bloomberg calculations, more than double the outflows for the same period last year.
China's Ministry of Finance sees room to boost revenue by tightening tax collection on income that's subject to individual income tax but hasn't been declared by the taxpayer or identified by tax authorities, according to a person with knowledge of the matter, who asked not to be named speaking about confidential discussions. The ministry didn't immediately respond to a request for comment.
Total income in the Chinese government's two main fiscal books fell 1.3 per cent year-on-year in the first four months of the year, while expenditure soared 7.2 per cent. That prompted the budget gap to swell by more than 50 per cent to upwards of $360 billion, the most ever for the period, according to Bloomberg calculations based on data from the Finance Ministry.
Tax bureaus in Beijing, Shanghai, and provinces such as eastern Zhejiang have urged residents to check their overseas gains and make tax declarations by June 30, when the reporting season for 2024 income ends, according to notices seen by Bloomberg as well as public statements.
Local authorities have acted in concert since at least late March after their big data analysis discovered some residents had failed to declare their offshore gains for taxation, according to government records. In cases publicized by the tax offices, the amount that residents were asked to pay back in overdue tax and fines was as low as 127,200 yuan ($17,720).
China's tax push also followed its 2018 implementation of the Common Reporting Standard, a global information-sharing system aimed at preventing tax evasion. While local regulations always stipulated that residents be taxed on worldwide income, including investment gains, it had rarely been enforced until last year.
Under the CRS, China has been automatically exchanging information with nearly 150 jurisdictions about accounts belonging to people subject to taxes in each member country for the past few years.
Personal investable assets in mainland China could soar to $80 trillion by 2030, with overseas investments rising to 11 per cent of households' investable assets, up from its 8 per cent in 2023, according to Bloomberg Intelligence.