Recent reports from financial media indicate that cities like Beijing and Hangzhou have seen cases where the Chinese mainland tax authorities are imposing personal income tax on Hong Kong insurance policy gains. The tax, applied at a rate of 20%, covers two types of income: insurance dividends and prepaid premium interest. However, these tax cases are not widespread and currently lack a unified or clear enforcement standard.
AIA (01299.HK) shares fell by as much as 9% during the trading session before recovering to close 5.92% lower at HK$73.15. PRU (02378.HK) saw its shares drop by as much as 6.5% before settling 4.57% lower at HK$108.5. FWD (01828.HK) also declined by more than 5%.
In response to the market turmoil, the Hong Kong Insurance Authority (IA) has issued a statement exclusively to the media. The IA stated that the Hong Kong SAR government and the regulator are closely monitoring the latest developments in the tax arrangements for financial products on the mainland. The IA emphasized that the legal requirement for Chinese residents to declare and pay tax on income from overseas investments has always existed. The market should not over-interpret the recent reports or make unwarranted speculations. The IA also noted that Hong Kong's insurance market is well-developed, with advanced and flexible product designs offering currency options, global asset allocation, life planning, and wealth transfer services, which are likely to continue attracting mainland clients.
Where to start
Some mainland residents have a strong preference for purchasing Hong Kong insurance policies. Insurers like PRU and AIA are highly dependent on sales from mainland visitors. In its annual results announced in March, PRU attributed a 12% increase in new business profit in the financial hub to stronger sales from local customers and mainland Chinese visitors. For AIA, a previous report from JPMorgan indicated that mainland visitor business contributes approximately 21% of the company's new business value. This high dependency explains why the shares of PRU and AIA were the most affected by the news.
Why the market reaction may be excessive
Analysts at Citigroup have released a report suggesting that the significant decline in PRU's share price was largely triggered by the media report indicating that the mainland is expanding its tax net on overseas insurance through the Common Reporting Standard (CRS). Citigroup believes the market's reaction is overblown. While the report appears to suggest a tightening of mainland regulatory oversight, it acknowledges that the tax cases are isolated and not national in scope, with some cases dating back to 2025, indicating they are not new regulations.
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