China has started enforcing a long-overlooked tax on overseas investment gains by the country’s ultra-rich, according to people familiar with the matter. Some wealthy individuals in major Chinese cities were told in recent months to conduct self-assessments or summoned by authorities for meetings to evaluate potential payments, including those in arrears from past years. The enforcement comes as the government faces dwindling fiscal revenue due to a slowdown in land sales, a key source of income for local authorities.
The move is part of a broader effort to ensure that the wealthy contribute more to the nation’s coffers and to address income inequality. While details on the exact mechanisms and timelines for the tax enforcement remain limited, this development indicates a significant shift in the government’s approach to collecting taxes from its wealthiest citizens who have investments abroad. Attempts to reach out to the tax authorities for comment have so far been unsuccessful.
Domestic investors might now be liable to pay a 20% tax on earnings derived from their investments abroad. Additionally, they could face penalties for overdue payments, although the final amount could be negotiable.
Taxing China’s ultra-rich investors
The regulatory focus appears to be not only on those with significant assets abroad but also on individuals who control publicly-listed companies in jurisdictions like Hong Kong and the United States. Some of those targeted reportedly have overseas assets exceeding $10 million. China’s implementation of the Common Reporting Standard (CRS) was intended to curb tax avoidance by ensuring that all global income, including investment returns, is appropriately taxed.
However, enforcement has been inconsistent, and the full scope of the new measures, including how far back they will extend, remains uncertain. The crackdown reflects China’s broader policy shift towards greater financial accountability and control over capital flows. This policy shift is in line with President Xi Jinping’s ongoing campaign against corruption and excessive wealth accumulation without due taxes, which he has previously described as a threat to the communist ethos.
As local authorities aim to issue up to $853 billion in bonds through 2027, Beijing is targeting new revenue streams by focusing on wealthy individuals with significant offshore assets. The continuous tug-of-war between Chinese policymakers and investors highlights the complexity and challenges faced by the government in its economic management efforts during these turbulent times.
