Chinese authorities are paying increased attention to capital gains made abroad, with Hubbis reporting that the country’s tax officials are summoning HNW investors for assessment. This will drive demand for tax advice in the market—yet not all wealth managers are positioned to capitalise.
China’s move to clamp down on tax evasion is not unexpected. It is part of the government’s Common Prosperity campaign, which seeks to redistribute wealth to drive wider economic prosperity. While this is set to drive demand for international tax advice, it is unlikely to curb HNW investors’ demand for offshore investments. As per GlobalData’s HNW Offshore Preferences Analytics 2024, Chinese HNW individuals book an average of 35.5% of wealth abroad.
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The reasons for this are varied, but business interests and an expectation of better returns abroad dominate. Neither driver is likely to be affected by the government’s increased focus on offshore gains. In fact, tax efficiencies are only a minor offshore driver, accounting for a mere 4% of Chinese HNW wealth booked abroad. In addition, the US—the number one booking center among Chinese HNW investors—has not signed the Common Reporting Standard, while China is a signatory. This means no automatic exchange of tax information occurs between China and the US, and centers such as Delaware, Nevada, and South Dakota remain appealing to Chinese HNW individuals looking for privacy.
Going forward, investors will be eager to get their tax affairs in order. Yet GlobalData’s 2024 Global Wealth Managers Survey found that only 51.7% of private wealth managers in China offer international tax advice. With demand for offshore investments only expected to pick up (91.7% of the country’s wealth managers expect the proportion booked abroad to increase), this is a lost opportunity.
Heike van den Hoevel is Principal Analyst, Wealth Management
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