Policy Recommendations and Impacts of China's Exit Tax

On March 7, 2022, in response to tax loopholes exploited by wealthy emigrants and the phenomenon of some wealthy individuals continuing to earn income in China after evading taxes through emigration, a Shanghai People's Congress representative proposed amendments to the Corporate Income Tax Law and the Personal Income Tax Law. These amendments aim to improve tax collection for those renouncing their citizenship, enhance personal income tax administration, streamline tax processes, and introduce an exit tax. The representative pointed out that although the 2018 revision of the Personal Income Tax Law added provisions for clearing tax liabilities when renouncing citizenship, it failed to tax unrealized gains on assets and did not extend tax enforcement post-renunciation. This has allowed some wealthy individuals to easily evade taxes by emigrating, renouncing their citizenship, and transferring their assets overseas.