China risks swinging the tax pendulum too far
FUTU•Beijing is tightening tax oversight of offshore wealth, including clarifying that a 20% income tax applies to offshore trusts. The measures aim to expand revenue as local governments have lost about 4.5 trillion yuan ($630 billion) in annual land-sale revenue, but risk discouraging wealth creation and increasing uncertainty.
1. Broader tax scrutiny
China has intensified oversight of offshore assets, including fining offshore brokers, tightening disclosure rules for overseas banking arrangements and clarifying that a 20% individual income tax applies to offshore trusts. Tax authorities have also begun levying taxes on income from offshore insurance policies. The measures mark a significant shift in the treatment of overseas assets, despite Beijing's characterization of them as enforcement of existing laws.
2. Offshore wealth expands
Hong Kong had $2.9 trillion under management as a cross-border wealth hub, with about 60% tied to mainland Chinese money, a Boston Consulting Group report published in April said. Mainland Chinese and Hong Kong investors' US equity holdings have roughly doubled in five years, while China's capital and financial-account deficit exceeded $800 billion in 2025. Trust assets in Hong Kong reached HK$6.2 trillion in 2025; taxing them at 20% would yield $159 billion, the article says.
3. Uncertainty weighs on investors
Wealthy families are assessing how far Beijing will look back under the new trust rules and how assets will be valued. Shares of insurers including AIA and Prudential have slumped, while Haidilao shares fell after co-founder Shu Ping sold about HK$2.75 billion, or roughly $350 million, of stock through a family trust vehicle. Henley & Partners estimates China had a net outflow of 7,800 millionaires carrying about $55.9 billion of investable wealth last year.
