Xi Jinping Targets the World's Richest Chinese with a Global Campaign to Increase Taxes

The tax assault led by Xi Jinping on the overseas wealth of China's great fortunes threatens to disrupt the activities of banks, financial advisors, and real estate markets in Hong Kong, Singapore, Japan, and the United States. It is noteworthy that the tax applies to both dividends and interest earned through trusts based outside of China.{#p-1791380422734-85318}

According to the Financial Times, the new tax rate of 20% will come into effect on October 22. The Chinese government's regulations have a broad scope: they cover inherited wealth and include a withholding mechanism for Chinese citizens who move their tax residence abroad.{#p-1791380504270-94528}

The measure affects high-net-worth individuals who have turned to international structures to manage investments, businesses, and family wealth. The government announced in July that it will audit the earnings for the period 2023-2025 and set a 90-day deadline to regularize tax situations.{#p-1791380779157-40365}

Additionally, the regulations contemplate the application of the tax at different stages of a trust's life: its creation, the appreciation of assets, the generation of income, and the distribution to beneficiaries.{#p-1791380832793-94453}

Aims to replenish the fiscal coffers and deepen the doctrine of "common prosperity" promoted by Xi Jinping.{#p-1791383542335-18237}
Photo: Xinhua

The Details of the Measure

This tax offensive pursues a dual political and economic objective: to replenish the coffers of the central government and deepen the doctrine of "common prosperity" outlined by Xi Jinping. The plan aims for the sectors that have most capitalized on the economic boom of recent decades to make a greater fiscal contribution, also considering offshore assets.{#p-1791380858038-20405}

Analysts at Barclays indicated that this could be the first part of a broader control over the earnings of exporters abroad, labor income outside of China, international investments, and, in the long term, inheritances.{#p-1791381044959-45908}

The Financial Times reported that Chinese financial institutions have been instructed to closely examine the overseas investments of their wealthiest clients. In some cases, the scope of the audit goes back to the year 2000, covering both financial operations and capital gains.{#p-1791381157515-1286}

The Financial Times reported that Chinese financial institutions have been instructed to closely examine the overseas investments of their wealthiest clients.{#p-1791384116538-80554}

Business Owners in Focus

The scope of the new tax assault caught many business families off guard in the midst of succession planning. An entire generation of founders, who built their fortunes during the first boom of China's economic opening, is approaching retirement and must quickly decide how to transfer their assets under a more restrictive tax scheme.{#p-1791381315212-50474}

Harry Yu, managing partner of the Hong Kong firm Fung Yu Trust Services, detailed that families must simultaneously analyze past transactions, current liquidity needs, and succession plans. "It's more archaeology than planning," Yu noted, describing the arduous work of reconstructing records of trusts, accounts, and investments.

A Chinese tech investor stated that the accuracy of the new system revealed prior knowledge of assets held abroad. "They have the system, they know their investments," he told the Financial Times.

The measure affects banks, financial advisors, and real estate markets in Asia and the United States.

Singapore and Hong Kong Concerned About the Measure

The new tax pressure has shaken Singapore and Hong Kong, the two main destinations for Chinese capital flowing abroad. The cross-border wealth managed in Hong Kong reached USD 2.9 trillion last year, according to Boston Consulting Group, a figure that positioned the city ahead of Switzerland as the largest global center for extraterritorial wealth.

Singapore, for its part, attracted Chinese entrepreneurs who set up family offices, purchased luxury properties, and moved part of their capital to a jurisdiction with a lower tax burden. Many believed that a change of residence or citizenship would protect them from Chinese tax obligations.

Sim Bock Eng, director of the Singapore law firm Wong Partnership, recalled that his clients reacted with disbelief. "They thought that would protect them," he stated to the publication.

Singapore

Japan and the United States Emerge as Alternatives

Concern also spread to Japan, where Chinese investors and entrepreneurs acquired high-end properties in Tokyo, Osaka, and resort areas like Niseko. Various real estate agents noted that this constant influx of capital has driven a marked increase in prices in specific segments of the market.

Many of these investors entered capital through informal transfer circuits and invested in small local businesses. In the face of China's tax onslaught, they turn to consultants and tax advisors to catch up without triggering audits on the source of funds or on the valuation criteria of their companies in Japan. Conversations have shifted from housing, schools, and visas to focus on taxes.

In this context, Taiwan and the United States emerge as possible refuges for those who already have assets outside China. Neither of the two countries formally participates in the OECD Common Reporting Standard, the multilateral mechanism that facilitates the automatic exchange of financial information between jurisdictions.

Bankers consulted by the media indicated that Morgan Stanley's wealth management division in New York has seen a marked increase in inquiries, account openings, and fund transfers from Hong Kong and Singapore.

Foreign non-resident investors are usually exempt from U.S. capital gains tax on profits derived from local investments. This tax advantage, combined with the lack of automatic information exchange under the OECD standard, has significantly increased interest in transferring funds to the United States.