The Bank of Singapore has seen a 35percent surge in Chinese clients interested in offshore trusts since the second half of 2018, according to Woon Shiu Lee, the head of wealth planning at the bank. The rate of inquiries leading to the establishment of a trust, which offers “tax-planning opportunities” by giving ownership to third-party trustees, has doubled since August, he said.
The reforms, which take effect on January 1, are meant to reduce the tax burden on lower- and middle-income people by making the rich pay more.
As China’s rich have become richer - the nation’s personal wealth swelled to an estimated $21 trillion (R297trln) last year - the practice of holding wealth abroad or changing their tax residence status has become commonplace. Even as the government strengthened controls on taking money out of the country last year to reduce risky outbound mergers and acquisitions and prevent capital flight, overseas holdings will reach $1 trillion this year, Boston Consulting Group estimates.
Some of China’s wealthiest are already using trusts. Wu Yajun, a developer with an estimated net worth of about $7.5 billion, held almost half of her real estate empire, Cayman Islands-registered Longfor Group Holdings, through a family trust.
Other wealthy trust holders are Zhang Shiping, who uses one in the Cayman Islands to hold a majority stake in one of China’s biggest aluminium makers, China Hongqiao Group.
Trusts put assets under the ownership of third-party trustees. That can sometimes limit an owner’s ability to make some decisions, but can also help steer away from taxes as high as 20 percent on profits of what Chinese authorities consider “controlled foreign corporations”.
In September, China implemented an international data-sharing agreement called the Common Reporting Standard, making overseas money more visible to mainland officials. That step meshes with a broader crackdown that swept up some high-profile wealthy Chinese closer to home.