Chinese officials are intensifying efforts to tax offshore trusts that hold shares in some Hong Kong-listed companies, clamping down on a structure that the country's mega-rich have used to invest billions of dollars overseas. Authorities in provinces and cities including Jiangsu and Shenzhen have demanded the owners of these trusts report detailed financial information including investment gains from dividends and share disposals, according to people familiar with the matter. That follows similar demands on three years of income information that started in Shanghai in early 2025, another person said.
In at least one instance, a local tax bureau sought to impose a 20% levy on investment gains plus additional penalties, one of the people said, asking not to be identified as the information is private. Authorities in another province are demanding disclosure of income derived from offshore trusts over the past two years, one of the people said.
China Personal Income Tax
Photo Credit: (Photo: Bloomberg)
The move highlights a crackdown on offshore structures that have long been considered a gray area for tax enforcement, part of increasing attempts by Beijing to tax money held overseas. The trusts now being targeted by tax officials have been used to invest in companies incorporated overseas including red-chip firms, which are registered offshore but offer investors exposure to Chinese companies. The State Taxation Administration didn't immediately reply to a request for comment.
Offshore trusts have long been popular vehicles for the shareholders of companies seeking Hong Kong listings, in part because they were largely shielded from the gaze of mainland tax authorities. In response to the increasing scrutiny, some corporate owners have been hesitant to create such structures to hold shares for upcoming Hong Kong IPOs, according to the people.
Saddled with a sluggish economy and widening budget deficit, China has sought more avenues for tax revenue. Authorities have intensified efforts to tax citizens' mountain of undisclosed overseas assets and expand their scrutiny to less wealthy individuals after targeting the ultra-rich two years ago. China's personal income tax revenue jumped 11.5% from 2024 to a record 1.62 trillion yuan last year, official data show.
Red Chips
The scrutiny of offshore trusts is the latest blow for red chip listings, which allow Chinese firms to sell shares in entities outside the mainland that hold assets and businesses within it. China Mobile Ltd. and Cnooc Ltd. are among the flagship companies that have taken this route for Hong Kong IPOs.
The China Securities Regulatory Commission has moved this year to restrict red-chip listings in Hong Kong, citing a need for greater transparency and stricter compliance. Some listing candidates are now overhauling their corporate structures before attempting to sell shares.
Chinese officials have also been taking tougher stances on capital flows out of the country, including removing the nation's two leading cross-border online brokerages from app stores in the mainland.
An estimated $1.04 trillion of so-called hot money flowed out of the country in 2025, according to an index compiled by Bloomberg Intelligence. That's the biggest yearly outflow since data began in 2006.
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