New Chinese tax laws, aimed at stemming moves of wealth offshore, have kicked in.

The drumbeat of noise over how China is targeting high net worth individuals continues, with the backdrop of a decelerating economy giving added edge to the country’s drive to pull in revenues.

As this publication has previously noted, new tax changes took effect on 1 January, giving authorities in the Communist Party-run country more incentive to examine assets and investments. According to Bloomberg this week, private wealth reached an estimated $24 trillion last year, with $1.0 billion held outside the country. 

As noted a few weeks ago, Bank of Singapore, for example, had logged a 35 per cent jump in Chinese clients interested in offshore trusts from the second half of 2018. Reforms are meant to extract more money from high earners and holders of wealth. The country has also launched a crackdown on tax evaders, and sought to stifle outflows of capital. Simultaneously, Chinese HNW individuals have been among the most eager applicants for “golden visa” residency/citizenship programmes operated around the world. 

New Chinese rules mean that owners of offshore companies will not only pay taxes on dividends they receive, but they will also face levies of as much as 20 per cent on corporate profits, rising from as low as zero under previous rules.

A 2 January report by Bloomberg noted that in the past, people could avoid tax on overseas earnings by acquiring a foreign passport or green card, while keeping their Chinese citizenship. This method will no longer operate because the government will tax global income from all holders of "hukou" household registrations, whether they have additional nationalities or not. 

In some ways, China is moving towards a “worldwide” tax regime of the sort used by the US, which taxes US citizens regardless of where they live.

The drive to bring in more revenue comes amid signs that the Chinese economy - for several years a powerful motor of global growth - is slowing down. The manufacturing purchasing managers index dropped to 49.4 in December, the softest result since early 2016. A figure under 50 implies contraction. The US-China trade tensions have rattled markets, and the China PMI data hit stocks at the start of this year.