China's super-rich sell shares and switch nationality before Thursday's offshore-trust tax deadline

Wealthy Chinese families are leaving offshore trusts and raising cash before a deadline to declare overseas income, The Japan Times reported. Some are selling shares, and some are changing nationality.

China's Ministry of Finance and State Taxation Administration issued the rules on July 24, according to the law firm Withers. The rules tax the gain in value at 20% when shares, property or other assets are transferred into an offshore trust. They also tax income from such trusts, and from the offshore companies the trusts control, at 20% a year. Hong Kong's The Standard described the regime as Beijing targeting overseas wealth. A 90-day voluntary window lets taxpayers settle unreported trust income for 2021 to 2025 without late-payment surcharges, and it closes on October 22, advisers say.

The rules also reach beyond China's borders. People living abroad, including US citizens and green-card holders, may be treated as Chinese tax residents if their principal economic interests remain in China, according to adviser Bolder Group. Beijing can enforce this because it receives foreign account data under the Common Reporting Standard (CRS), the international system under which tax authorities exchange bank-account information.

Families face a choice between paying now and keeping assets in structures that are now visible to the tax authority. Some are giving up Chinese nationality to escape residency rules. Others are selling Hong Kong-listed holdings to raise the cash to pay.