Once Highly Favored by China’s Affluent Class, The Hukou of Tier-1 Cities May Now Face the Prospect of Being “Renounced”

Mr. Lu’s Tea Leaves
With Luc Lu

A seasoned veteran of the Chinese RCBI industry keeps readers abreast of overarching trends in the world’s biggest investment migration market.

The hukou once symbolized success and prestige. Luc Lu explains why that’s starting to change for China’s elite.

For all Chinese high-net-worth individuals, a major development in 2025 cannot be overlooked. According to a June 6 report in Singapore’s Lianhe Zaobao titled China Proposes Taxing Middle-Class Citizens’ Offshore Incomes, “Since China implemented the Common Reporting Standard (CRS) in 2018, local regulations have long required residents to declare and pay taxes on global income, including investment gains. However, enforcement remained lax until last year. In 2024 alone, mainland Chinese investors funneled HKD 658 billion into Hong Kong’s stock markets through cross-border financial connectivity mechanisms, more than double the capital outflow compared to the same period last year. In late March 2025, tax authorities in Beijing, Shanghai, Zhejiang, and other regions issued notices on their official websites, reminding residents to declare and pay taxes on overseas income between March 1 and June 30 of the following year.”

Additionally, China’s top law firms have begun publishing content on social media offering guidance on how to respond to inquiries from local tax authorities regarding foreign accounts and assets. As a result, the topic has become a hot-button issue in the market.

Undoubtedly, this series of developments has brought renewed attention to the overseas income of China’s affluent class. At the same time, it presents a rare window of opportunity for the investment migration market in China, particularly in integrating offshore tax residency planning with services from international professional firms. A partner at a tax law firm based in Shanghai’s core financial district shared: “We’re now seeing a backlog of client cases. Many individuals from other regions are signing agreements and making payments after just one phone consultation.”

Moreover, with the threshold for mandatory overseas income reporting lowered from USD 10 million to USD 1 million, the number of affected individuals has expanded significantly. This creates opportunities for service providers to offer tiered product portfolios tailored to different market segments, setting the stage for a potential “feast” of tax migration.

From recent cases in the Chinese market, two main categories of services have emerged:

1. Clients who have already been contacted by local tax authorities: These cases focus on how to properly declare overseas asset income to minimize tax liabilities and regulatory risks.

2. Clients who have not yet been contacted during the current CRS cycle: These services focus on proactively restructuring investment and residency strategies to attain non-tax resident status in China, thereby mitigating future tax risks.

The first category is primarily handled by specialized tax attorneys who assist in addressing historical compliance issues and coordinating with relevant authorities (mainly tax bureaus and foreign exchange regulators).

The second category is closely tied to the investment migration sector. It involves planning residency status and guiding clients through the process of applying for non-tax resident classification with the Chinese tax authorities. Current requirements for such status include: renouncing Chinese hukou, not exceeding 183 days of physical presence in China, and not maintaining a domicile within the country.

It’s important to note that renouncing hukou is not the same as renouncing Chinese citizenship. Chinese nationals can qualify for non-tax resident status as long as they possess permanent residency or long-term legal status in another country. Compared to giving up citizenship, relinquishing hukou is a simpler and more accessible step.

Whether this shift will trigger a new wave of hukou renunciations remains to be seen. But it may mark the beginning of a new chapter for China’s investment migration industry, one driven not by lifestyle or education, but by taxation.