SINGAPORE: A foreign passport, permanent residence abroad or an offshore trust may not put wealthy Chinese beyond Beijing’s tax reach.
At the heart of the issue is tax residency.
A foreign passport or overseas permanent residence does not automatically place a person outside China’s tax net if their economic interests and connections remain substantially linked to China, said Loh Kia Meng, senior partner and head of private wealth practice at Singapore-based law firm Dentons Rodyk.
“In practical terms, a foreign passport or a foreign permanent residence is not, by itself, a tax plan,” he said.
Some Chinese tycoons and wealthy citizens use foreign passports, permanent residency and offshore trusts to hold their wealth abroad.
Singapore and Hong Kong are the two popular destinations in Asia for China-linked families to set up trust structures.
Offshore trusts are popular vehicles for them to hold everything, from pre-initial public offering stakes to family fortunes.
But on July 24, China’s Finance and State Taxation Administration Ministry issued their clearest rules yet on taxation of offshore trusts, marking one of Beijing’s most significant efforts to tighten oversight of offshore wealth arrangements.
Now, a 20% tax will be collected at nearly every stage of a trust’s life, from establishment to beneficiary distribution to termination.
Unpaid taxes on assets placed in trusts since Jan 1, 2023, and on trust income received before 2026 must be settled within 90 days to avoid penalties for late payment.
For now, Singapore’s authorities said they have not seen signs of a significant impact on the local wealth management industry.
When asked about the new rules at the Aug 11 second quarter economic survey briefing, Beh Swan Gin, permanent secretary at the Trade and Industry Ministry, said: “We don’t have any reports at this point from the wealth management sector that this has impacted them.
“Nonetheless, we are keeping a close watch on the sector,” Beh added.
Edward Robinson, deputy managing director at the Monetary Authority of Singapore (MAS), said that Singapore’s asset management industry and private wealth management industry rely on diversified sources of funds.
“These flows of funds continue to be strong, reflective of the general global financial conditions and relative returns, so we didn’t pick up any unusual volatility in recent weeks,” he said.
Private banks that were contacted on the matter declined to comment.
But sources said with the clock ticking, private banks have sent notices to their clients, suggesting they seek legal advice on their trusts.
Some private banks have even sought the help of legal and tax experts to visit clients together to lend clarity to the “fluid and messy” situation, a tax expert said.
Some wealthy Chinese are trying to work out how much they may owe Beijing as China steps up enforcement, added the tax expert, who declined to be named. — The Straits Times/ANN
