China Considers Tax Breaks to Draw In Global Funds, Fend Off Tax Havens

China Considers Tax Breaks to Draw In Global Funds, Fend Off Tax Havens

China is considering tax breaks to attract more global funds to register in the country and reverse swelling outflows to international tax havens, people with knowledge of the matter said.

The Ministry of Finance has enlisted a global accounting firm to conduct due diligence ahead of a potential feasibility study on a capital gains tax exemption, the people said, asking not to be identified discussing confidential information. The deliberations are at a preliminary stage, and there are regulatory hurdles that would need to be cleared first.

Attracting international funds is a key part of President Xi Jinping’s push to build a more institutionally driven financial system that’s less prone to the boom-and-bust cycles that have plagued China. International funds registered in China are currently subject to taxes of up to 25 percent on capital gains earned worldwide, marring the nation’s appeal as a base.

The Ministry of Finance didn’t immediately respond to a fax seeking comment.

Offshore Havens

Dropping the levy could also reduce the propensity of local fund managers to use offshore tax havens as a base. The Cayman Islands and British Virgin Islands remain second and third only to Hong Kong as the most-popular destinations for China’s foreign direct investment outflows. Chinese money flows into the British Virgin Islands jumped almost 60 percent in 2017 even as overall outflows fell, according to the latest available official data.

Islands in the Sun

The British Virgin Islands attracted the most outbound Chinese direct investment after Hong Kong in 2017, and has been an increasingly popular destination


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