|Many Chinese high-net-worth individuals believe sooner or later the central government will impose an inheritance tax. As a result, some people are beginning to consider whether they can use insurance policies to avoid it despite the fact it has not yet been introduced. Lu Jianshe / For China Daily|
Liu Fang, 34, a Shanghai insurance consultant, has received more than 30 phone calls in the past two months from clients inquiring about how to use insurance policies to avoid inheritance tax, even though China has yet to introduce one.
An insurance policy in Shenzhen, with assured payout of more than 100 million yuan ($16 million), which has been widely reported as a tax avoidance scheme, has alerted wealthy people who fear that some first-tier cities will impose an inheritance tax in the near future, said Liu.
A private enterprise owner in Shenzhen bought the insurance policy just after Zhang Siping, a member of the Standing Committee of Shenzhen Municipal People's Congress, local legislature, said in a late November forum that if China decides to introduce an inheritance tax, Shenzhen could be chosen for a pilot project, reported 21st Century Business Herald.
"There may be some misunderstanding about this case because, as far as I know, the majority of the assured sum of the 100 million yuan would go to accident insurance. The portfolio of the insurance policy does not look like it is designed to avoid a tax that is not currently in existence," said Wei Chunhua, an insurance agent in Shenzhen.
Wei said he has not observed a surge in numbers of people buying insurance policies with large assured sums or high premiums.
A source with the administration of local taxation in Shenzhen municipality said the administration had not received any notification about launching an inheritance tax by Jan 14.
Wei said that to achieve high sales, some insurance agents might use "tax avoidance" as a pitch to recommend high-premium and high-assured-sum policies to the wealthy.
"While profits from life insurance as personal income are not taxable, it is not necessary to buy high-premium insurance when tax is the only concern because it may impair cash liquidity," said Zhang Ruilan, a wealth manager with Shanghai Jinrui Investment Consultancy Co.