China is moving toward U.S.-style worldwide taxation of rich citizens

Beijing’s recent push to tax the offshore wealth of its citizens may be only the opening phase of a broader campaign for income from the holdings of China’s rich families, according to analysts.

Yingke Zhou, director at Barclays, views the recent campaign to tax Chinese offshore assets as “potentially the first steps” toward tighter oversight of cross-border wealth, as Beijing works to ease fiscal strains and replenish capital to fund strategic technology industries.

“Policymakers could consider expanding scrutiny to areas such as exporter earnings held offshore, overseas investment [and] employment income, and over the longer term, estate or inheritance taxation,” Zhou said in a recent report. 

Unlike the U.S., U.K., Japan and major European economies, China levies no real estate, inheritance, or gift tax, and draws a comparatively small share of revenue from personal income, capital, and wealth-related levies, according to Bank of America Research.

BofA analysts see a similar path, saying wealthier households face “offshore interest income, salary and property gains potentially next in scope” for greater taxation.

Zhou expects authorities to widen the tax net to capture returns on overseas real estate, equities, fixed income and precious metals. Such a shift would bring China’s practices closer to those of other major economies, he said.

Hong Kong and Singapore have been favored havens for wealthy Chinese relocating their fortunes, with the former having built up a substantial trust industry dependent on the mainland’s wealth.

Ryan Lin, director at Singapore-based Bayfront Law, said cross-border Chinese clients must “absolutely brace for a permanent, structural tightening as Beijing shifts from passive oversight to a worldwide taxation model akin to the U.S. regime.”

Lin expects enforcement to eventually extend to an exit tax on unrealized capital gains for those who emigrate, and to rules that would function as a de facto estate and gift tax.