(Yicai) Oct. 22 -- Contrary to rumors on social media, China has long had a policy to tax the global income of its high net worth citizens. But the policy has not been strictly enforced.

Chinese mainland residents have been required to pay taxes on their overseas income since 1980, when the Individual Income Tax Law was introduced. That requirement was carried over into 2018’s revision. And since 2019, non-domiciled citizens have enjoyed a six-year grace period, which is nearing its first expiration date.

According to the recent speculation, the “overseas wealth tax” will kick in at USD10 million, with a tax rate of 20 percent, potentially affecting the shareholders of many listed companies. No official notice has been released yet.

Compared with most developed countries, China's legal provisions for collecting individual income tax on overseas gains have lagged, said Xiao Sa, a senior partner at Beijing-based Dacheng Law Offices. However, the regulations introduced in 2020 laid the institutional groundwork for more effective implementation, Xiao added.

In January 2020, the Ministry of Finance and the State Taxation Administration issued regulations on the tax scope, calculation methods, tax credits, and filing details for individual income tax on overseas income.

Enforcement has been lax for two reasons: the six-year exemption period and considerations of economic development and preventing capital outflows, Xiao noted. But it is just a matter of time before it is fully enforced, as the relevant laws and regulations have been upgraded and the social economy has progressed, Xiao added.

At the moment, there are considerable challenges in collecting the tax. Individuals who meet the legal definition of a tax resident may try to avoid paying by changing their nationality or moving their assets to places not covered by the Common Reporting Standard, a global standard for the automatic sharing of financial information.

Xiao’s team has also looked at the tax’s potential impact, drawing a comparison with France’s 75 percent "super wealth tax" of 2013, which calmed discontent over the wealth gap and the sluggish economy in the short term.

But in the long run, it precipitated the outflow of capital and high net worth individuals from the European country, the team found, noting that in light of the differences between China and France, the pros and cons of such a policy would need to be observed over the long term.

Editor: Martin Kadiev