High-Tax Country Resident Planning To Go Offshore: China

If you are resident and domiciled in China (which will be the normal situation for a native-born Chinese individual) then you are taxable on your world-wide income.

Many resident individuals will be participating in domestic Chinese tax-privileged savings and investment instruments, and usually these can simply be discontinued on leaving without serious tax penalties.

Domicile is established as a result of habitual residence and/or family or economic involvements in China. Individuals with Chinese domicile, and those who have lived there for more than five years, pay tax on their world-wide income. In order to lose tax residence it is necessary to stop fulfilling residence criteria in a given tax year.

For an individual who knows she is going to leave China, there is a case for switching income-generating assets into capital appreciation assets in a country outside China. Gains which crystallise after residence has finished will escape Chinese tax.

Once Chinese residence has been terminated, and if non-residence is expected to be permanent, then an ex-Chinese resident is free to invest offshore in order to obtain the best possible returns.

Once a definite decision to move offshore has been made, careful thought should also be given to existing Chinese capital assets, including pension assets. Will it be possible to move them offshore without incurring a tax liability? Is it desirable to move them early and pay the tax anyway? These are complex questions, and the answer will depend on individual circumstances, but for many individuals there will be interesting tax planning possibilities.

www.lowtax.net contains extensive information on the investment, tax and legal regimes in 50 of the main offshore jurisdictions. Further information is available in our Investment Information Providers Section, and the four main types of offshore investment are described in the Guide to Offshore Investment on this site.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.