China has begun taxing the overseas trust income of its wealthy citizens, resulting in the collection of over 160 billion yuan (approximately 32 trillion won) in personal income tax.
According to state-run Xinhua News Agency on November 12, the reported personal income tax related to overseas trust income has exceeded 160 billion yuan, with more than 120 billion yuan collected in October alone. The implementation of overseas trust taxation has led to a nearly 90% increase in nationwide personal income tax revenue in China compared to the same period last year.
The Ministry of Finance and the State Taxation Administration announced the taxation regulations for overseas trusts on July 24. Under Chinese tax law, residents are obligated to pay taxes on income earned both domestically and abroad. This includes income derived from transferring assets to overseas trusts or earning profits through these trusts. Capital gains from transferring assets into overseas trusts, as well as income from asset transfers and interest or dividends generated during trust operations, are subject to taxation. A standard tax rate of 20% applies to these incomes.
The Chinese government granted existing overseas trust holders a 90-day grace period, encouraging voluntary reporting and payment by October 22 without incurring late fees. Tax authorities reported that the reporting process went smoothly, with most taxpayers cooperating actively.
The primary reason for China's move to tax overseas trusts is to prevent tax evasion through the transfer of assets abroad. The Ministry of Finance and the State Taxation Administration noted that some individuals have established trusts in regions with low transparency and tax burdens to hide assets and evade taxes.
The need for financial resources cannot be overlooked, especially as the prolonged slump in the real estate market has significantly reduced local governments' key revenue from land use rights sales. According to the Ministry of Finance, from January to September this year, local governments' revenue from land use rights sales decreased by 27.9% compared to the same period last year. The decline in land purchases by real estate developers has weakened the financial capacity of local governments.
Further taxation on overseas assets in China is expected to continue. October 22 marks only the end of the voluntary reporting grace period, not the completion of post-verification by tax authorities. The tax authorities have stated their intention to collect unpaid taxes and legal late fees from taxpayers who did not report or reported inaccurately.
* This article has been translated by AI.
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