Mainland taxing returns on offshore insurance policies and in HK

Chinese mainland tax authorities have begun levying personal income tax on returns from offshore insurance policies.

That reportedly aims to close a longstanding regulatory loophole as cross-border financial data sharing becomes more comprehensive.

According to mainland financial news outlet Caixin, tax authorities have already enforced the policy in cities including Beijing and Hangzhou but cases remain relatively limited.

A 20% tax has been imposed on returns from Hong Kong participating insurance policies, including policy dividends and interest earned on prepaid premiums.

Under China's Individual Income Tax Law, personal income tax applies not only to wages and salaries, but also to business income, interest, dividends and bonus income.

Interest, dividends and bonus income are generally subject to a 20% tax rate.

The report also cited insurance industry representatives as saying there is currently no clear threshold for enforcement, meaning the tax is not limited to high-value insurance policies.

Analysts say uncertainties remain over how the policy will be implemented, including whether it could have retrospective effect.

They expect the move to dampen mainland residents' appetite for buying insurance in Hong Kong in the short term.

Insurance sector lawmaker Chan Pui-leung said that since 2018, mainland China has participated in a reporting scheme with multiple jurisdictions.

Under the framework, overseas financial institutions, including Hong Kong banks and insurance companies, identify accounts held by Chinese tax residents and share information such as investment income and insurance policies with China's State Taxation Administration.

He said greater tax clarity could benefit the market with a more transparent and stable framework for cross-border capital flows over the long term.

He adds that Hong Kong remains an attractive insurance market because insurers have access to a wider range of global investment opportunities and products.

And returns on Hong Kong insurance products are currently around 6% to 6.5%, compared with roughly 3% to 3.5% on similar products in the mainland.