HONG KONG, Sept 22 (Reuters) – China’s new rule to chase income tax on offshore trusts, a popular structure adopted by many Hong Kong and US-listed Chinese companies’ shareholders, could pose short-term risks on certain shares as payment deadline approaches, according to BofA Securities
• Offshore-listing private companies might be under more scrutiny, while state-owned companies are likely less impacted, Winni Wu, BofA Securities China Equity Strategist, told Reuters at a media briefing in Hong Kong.
• Chinese authorities in July said they will impose individual income tax on assets placed in offshore trusts and the income they generate, and the unpaid taxes must be settled within 90 days, which is now approaching.
• Chinese hotpot chain Haidilao’s major shareholder unexpectedly sold 259 million shares this month to cash out HK$2.75 billion ($350.59 million). Its shares have dropped 17% since then, raising market concerns of tax payment’s impact on some offshore Chinese stocks.
• “The deadline for this offshore tax is October 22, so that gives us roughly a month to see the actual impact,” Wu said.
• The offshore trust tax collection could result in event risks on single stocks, but is unlikely to be a dominant driver for the Hong Kong market, she added.
• Wu believes there is room for these company owners and shareholders to negotiate with local tax bureau as “some of the tax liability can be quite high, and it’s unrealistic to expect people have that amount of cash to immediately pay the tax.”
• The crackdown is forcing wealthy Chinese people to rethink their trust structures and investment holdings, Reuters reported earlier, citing lawyers and advisers.
($1 = 7.8440 Hong Kong dollars)
(Reporting by Summer Zhen; editing by Lincoln Feast.)
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