Hong Kong insurance taxation sparks concerns for mainland investors

Market concerns are rising regarding the taxation of insurance benefits obtained through Hong Kong policies by mainland Chinese residents. While the Personal Income Tax Law of the People's Republic of China exempts insurance claims such as death benefits, critical illness payouts, and medical insurance from tax, the taxation of investment returns from offshore savings-type policies remains uncertain.

Industry experts suggest that if the portion of surrender values exceeding cumulative premiums is treated as investment income, it could be subject to a 20% tax rate. Key points of contention include how to calculate taxable income for different policy types—such as dividend-paying savings insurance versus universal life insurance—and whether tax should be triggered at the time dividends are issued or upon policy surrender.

This uncertainty follows a significant increase in mainland residents purchasing Hong Kong insurance. Data shows new policy premiums from mainland visitors grew from approximately 13.49 billion HKD in 2022 to over 33 billion HKD by 2025. Major insurers like Prudential and AIA have reported growth driven largely by this demographic. Analysts note that if a 20% tax is implemented, the internal rate of return (IRR) for Hong Kong dividend-paying policies may decrease, narrowing the yield advantage they currently hold over mainland Chinese insurance products.