China tax authority clarifies offshore insurance income subject to domestic tax, report says
XLF•Insurance stocks took a hit
Beijing and Hangzhou authorities have started to apply personal income tax rates of 20% on returns from Hong Kong insurance policies, people with direct knowledge of the matter told Reuters on Thursday.
Shares of major insurance firms offering service to Chinese investors, particularly those with sizable Hong Kong operations, fell on the tightened tax rules on Wednesday and Thursday.
Among them Prudential 2378.HK took the heaviest hit with Hong Kong shares down 5.4% from Wednesday to Friday, followed by a 5% drop of AIA Group 1299.HK.
Mainland Chinese authorities have escalated scrutiny of offshore investments in recent months, including imposing tax on offshore trusts, which analysts say could weigh on money flows to Hong Kong.
If policyholders surrender policies, reduce coverage, or make cash dividend withdrawals, the gains may be categorized by tax authorities as income and taxed at a 20% rate, said Wang Huaitao, a lawyer from Thinkoo Law firm.
