Personal income taxes surged nearly 90% in October due to China’s meaningful results in overseas tax collection

To crack down on the use of offshore trusts to avoid taxes, China issued an announcement on July 24 this year, stating that taxpayers who receive income from offshore trusts must complete tax declarations and pay taxes within a 90-day transition period, and no late payment fees will be charged. Xinhua News Agency reported that the vast majority of taxpayers actively cooperated and declared more than RMB 160 billion (about US$24 billion) in personal income tax for offshore trusts, of which more than RMB 120 billion were deposited in October, increasing China’s personal income tax revenue by nearly 90% that month.

ChinaMinistry of Finance After the State Taxation Administration issued the “Announcement on Matters Related to Personal Income Tax on Offshore Trusts” on July 24, the Taxation Department of the Ministry of Finance and the Income Tax Department of the State Taxation Administration said in a press release that the background of issuing this “Announcement” is that in recent years, some individuals have set up offshore trusts for intergenerational wealth inheritance, cross-border asset allocation, and risk management.

The press release explained that because offshore trusts are often established in countries and territories with low information transparency and low tax burdens, some individuals use them to transfer assets, hide money and avoid taxes.

Li Zuhong, a professor at the Beijing National Accounting Institute, said taxing resident individuals’ global income, including offshore trust income, is a basic principle of China’s personal income tax law and a common international practice.

Li Zhuhong told Xinhua News Agency that the above “Proclamation” not only clarifies the tax law principles for the taxation of offshore trust equity deductions, dividends and other benefits, but also clearly delineates the taxation rules for each link, unifies tax calculation standards, significantly improves the certainty and transparency of taxation policies, helps guide taxpayers in complying with the rules, and better enhances the regulatory role of taxation in promoting legal fairness. Presents from.

Currently the transition period of 90 days has ended. The Income Tax Department of China’s State Administration of Taxation said that in the next step, for taxpayers who make false declarations or have not actively declared after the transition period, the tax department will urge them to declare and pay taxes in accordance with law, and charge late payment fees as necessary; For taxpayers who fail to declare after being requested or do not declare truthfully, measures such as filing a case for investigation will be taken in accordance with the law, and serious cases will be publicly exposed.

The Income Tax Department of China’s State Administration of Taxation stressed that the tax authorities will also seriously investigate and deal with illegal intermediaries and persons who induce and assist taxpayers to evade taxes in accordance with laws and regulations and expose them as appropriate, so as to further promote the implementation of offshore trust income taxation policies and play a better role.

Reuters, the Financial Times and other international media have previously reported that amid a real estate slump, declining land revenues and pressure on government finances, Beijing officials are tightening tax collection and management of foreign income and offshore trusts of wealthy individuals to expand sources of income.

Reuters reported that as a result, some wealthy individuals in China are considering selling assets, borrowing money to pay taxes or adjusting trust arrangements; Other interviewees are concerned that tax oversight could be expanded to trace how money is moved out of China.

In early September, Xu Ping, the wife of Haidilao founder Zhang Yong, sold 259 million shares of Haidilao through a company under a family trust, accounting for about 4.65% of the issued shares, cashing in about HK$2.751 billion. ‌At that time, the market generally believed that it should be related to China’s new offshore trust taxation policy. Haidilao only said that this was solely for the shareholders’ own capital needs and financial arrangements and had nothing to do with the group’s business, operations, financial condition and development prospects.