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Wealth management
BusinessChina Business

China cracks down on offshore trusts with new tax rules for the wealthy

Beijing’s new tax rules aim to close loopholes and boost fiscal revenue amid slowing economic growth and rising fiscal burdens

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The late Zong Qinghou, billionaire founder of soft-drink giant Wahaha Group, pictured in 2017. An inheritance dispute within his family has shed light on the wealth tycoons transfer to overseas accounts. Photo: Getty Images
Zhang Shidongin Shanghai

China is moving to heighten the scrutiny of overseas assets controlled by the country’s richest families by imposing personal-income taxes on their offshore trusts, plugging a loophole long leveraged by the wealthy to eschew tax payments and alleviating fiscal stresses brought on in part by a perennial downturn in home prices.

A recent statement by the Ministry of Finance suggests that the government crackdown has progressed to the enforcement stage after a legal case concerning one of the mainland’s richest families laid bare a little-known grey area.

Effective immediately, personal-income tax will be levied on gains made from asset values, such as stocks and properties, when initially put into these trusts, the ministry said in the statement on Friday. Incomes generated from the trusts will be taxed annually, it added.

These sweeping changes to the taxation rules mark a tightening by Beijing in its oversight of the massive wealth that China’s wealthiest have amassed or transferred overseas. Offshore trusts, often created in Hong Kong, are one of the most popular vehicles rich mainland-based families use to skirt regulatory surveillance and avoid taxation.
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