How China’s ambitious plan to tax global income faces opposition in US, Hong Kong and even Beijing
- Individuals spending over half of each year in mainland could have worldwide income taxed under new law – but exemptions are being sought
- US refusal to sign up for international information exchange prevents China obtaining information about taxable assets
China is facing great pressure to tone down its ambitious plan to tax the worldwide income of those who stay in the mainland for over 183 days, following opposition from a government department in charge of attracting overseas talent to Hong Kong, as well as hurdles to obtain information about its residents’ assets in the United States.
Various parties and authorities are seeking exemptions to the planned taxation, which relies on a financial information exchange mechanism – the Common Reporting System (CRS) – which China adopted last year.
The unexpected opposition from home and abroad has left the tax authorities facing an embarrassing climbdown.
Having last year adopted CRS and finished due diligence on resident and non-resident taxpayers’ financial information, China began its first sharing of their financial information with over 100 countries under CRS in September, which was widely believed to be leading to taxing people’s global income and assets in the near future.
In its new individual income tax law, which will take effect from January 1, China for the first time introduced anti-tax avoidance provisions, empowering tax authorities to tax people who transfer assets to evade tax or who take advantage of havens to avoid tax.
It is likely that China will remove the article allowing foreigners who spend a cumulative 90 days out of China in a year to be recognised as non-tax resident, according to a draft regulation on implementation of the individual income tax law that has been out for consultation.