People like to complain that China has abandoned its Communist values in favor of state-directed capitalism. But in at least one way, the rulers of the world's second-largest economy are adhering to the prescriptions of Karl Marx - with a burdensome progressive income tax.

And as the CPC has imposed new tax cuts to try and pump more fiscal stimulus into the economy to help revive its flagging growth. But wealthy Chinese are worried that the state will expect them to cover the revenue shortfall (particularly as the trade war threatens to sap the Chinese economy of badly needed FDI).

In a country where personal wealth has swelled to $24 trillion since the days of Deng Xiaoping - $1 trillion of which is held abroad - these changes to China's tax regime could have a resounding impact on asset markets around the world (Vancouver comes to mind).

The changes, which took effect on Jan. 1, have already prompted wealthy Chinese to look into creating overseas trusts that could help them protect their wealth from the state, as China's decision to embrace the Common Reporting Standard, an international data-sharing agreement that allows governments to more easily track the overseas wealth of their citizens.

Here's a rundown of how China's new tax rules might impact wealthy Chinese, and how that in turn might reverberate around the world (text courtesy of Bloomberg):

Crackdown on Havens

Under the new rules, owners of offshore companies will not only pay taxes on dividends they receive but will also face levies of as much as 20 percent on corporate profits, from as low as zero previously. This has triggered a flood of rich families seeking refuge via trusts, which often shield wealthy owners from having to pay taxes unless the trusts hand out dividends. Overseas buildings or shell companies are also becoming easier to track for authorities as China embraces an international data-sharing agreement known as the Common Reporting Standard, or CRS.

It’s not clear how the government will utilize CRS data, especially in early 2019, but authorities may grant amnesty for a certain period for a stable transition or focus on penalizing the biggest offenders, according to Jason Mi, a partner at Ernst & Young in Beijing.

Closing Loopholes

In the past, the rich could avoid paying taxes on overseas earnings by acquiring a foreign passport or green card, while keeping their Chinese citizenship. But this won’t work starting in January as the government will tax global income from all holders of "hukou" household registrations - the most encompassing way of identifying a Chinese national - regardless of whether they have any additional nationalities.

That’s prompted many people to give up their Chinese citizenship in 2018 by surrendering their "hukou" to avoid paying taxes on foreign income from Jan. 1, according to Peter Ni, a Shanghai-based partner and tax specialist at Zhong Lun Law Firm. Starting in 2019, people surrendering Chinese citizenship will need to be audited by tax authorities first and possibly explain all their sources of income, according to Ni.

Reining in Gifts

Tycoons transferring assets to relatives or third parties could be subject to taxation in the new year, depending on how strictly China enforces rules on gifts, according to Ni at Zhong Lun. The levies could reach as much as 20 percent of the asset’s appreciated value, according to Ni.

For example, if a tycoon were to transfer overseas shares worth $1 million to his son for free, and if those shares originally cost the tycoon $100,000, the tycoon could be taxed 20 percent of the $900,000 increase in the value of those shares, or $180,000.

The risk of getting taxed will be higher if the recipient is a foreigner because their assets may be beyond Chinese officials’ reach, according to Ni.

Tougher Taxman

Tax authorities will sharpen their scrutiny of high-net-worth individuals thanks to more modern tools at their disposal, according to Ni. One is the Golden Tax System Phase III platform that’s being increasingly used to chase down people’s entire source of income. The system allows authorities to view various tax-related data, which had been scattered across various government departments, in one consolidated platform. The new system also beefs up the identification process by preventing individuals from divvying up their income across multiple sources or ID numbers to pay lower taxes.

But it’s not just the rich that may face a stricter tax environment. China lowered the threshold for blocking citizens with overdue taxes from leaving the country to 100,000 yuan ($14,600) from the previous threshold of 1 million yuan, according to the official Xinhua news agency.

Eyes on Property

Further down the road, China is preparing to introduce a property tax law that could go into effect as soon as 2020. Though the tax rate and the details remain unclear, the prospects of the tax has caused people with multiple apartments to worry and made properties a less desirable investment tool, EY’s Mi said.