China's plan to cut taxes in 2019 for the masses has the nation's super-rich running for cover on concern the government will make up the shortfall by going after the wealthy.
Changes to the tax regime as of Tuesday mean authorities will be paying closer attention to assets and investment holdings. In a nation where personal wealth is estimated to have climbed to a record $24 trillion in 2018 -- $1 trillion of which is held abroad -- that potentially offers rich pickings. Anxiety over how the new rules will be enforced has already triggered a flood of Chinese clients seeking to create overseas trusts.
Tougher taxes at home could have implications beyond China's shores, with the country's wealthy having been on a buying binge in recent years, driving up prices for everything from property in Vancouver and Sydney, to famous artworks and fine wines.
The State Administration of Taxation didn't respond to a faxed request for comment.
Under the new rules, owners of offshore companies will not only pay taxes on dividends but will also face levies of as much as 20 percent on corporate profits, from as low as zero previously. This has triggered a flood of rich families seeking refuge via trusts, which often shield wealthy owners from having to pay taxes unless the trusts hand out dividends. Overseas buildings or shell companies are also becoming easier to track for authorities as China embraces an international data-sharing agreement known as the Common Reporting Standard, or CRS.
It's not clear how the government will use CRS data, but authorities may grant amnesty for a certain period for a stable transition or focus on penalizing the biggest offenders, according to Jason Mi, a partner at Ernst & Young in Beijing.
In the past, the rich could avoid paying taxes on overseas earnings by acquiring a foreign passport or green card, while keeping their Chinese citizenship. But this won't work now as the government will tax global income from all holders of "hukou" household registrations -- the most encompassing way of identifying a Chinese national -- regardless of whether they have any additional nationalities.
That prompted many people to give up their Chinese citizenship in 2018 by surrendering their "hukou" to avoid paying taxes on foreign income as of Tuesday, according to Peter Ni, a Shanghai-based partner and tax specialist at Zhong Lun Law Firm. Starting in 2019, people surrendering Chinese citizenship will need to be audited by tax authorities first and possibly explain all their sources of income, according to Ni.
Business on 01/03/2019
Print Headline: Wealthy Chinese scurrying to stash amid tax overhaul