An 81-year-old founder of a publicly listed company, who recently renounced U.S. citizenship and regained Chinese nationality, suddenly needed to reduce his stock holdings, and there are even rumors that he will pay over 100 million yuan in taxes. This seems unbelievable, but behind it lies the hidden trap of the U.S. tax system that high-net-worth individuals worldwide cannot avoid.

Let's look at this real case. Yin Zhiyao, founder of Semiconductor Manufacturing International Corporation (SMIC), has held company shares for a long time, with the current market value of the company around 210 billion yuan. Recently, after restoring Chinese nationality, he announced plans to reduce his holdings by no more than 290,000 shares (worth about 97 million yuan), with the official reason being "to comply with relevant tax procedures."

The question is: just changing nationality, why does it require stock reduction? Why does a small proportion of reduction trigger such high market attention?

**The answer lies in the U.S. "exit tax" system.**

Unlike most countries, the U.S. implements a worldwide taxation system. As long as you are recognized as a U.S. citizen or U.S. tax resident, you must report your global income and asset gains to the U.S., including holdings in overseas listed companies. But here’s a key issue: when a high-net-worth individual decides to renounce U.S. citizenship, can they "silently leave" with their accumulated wealth over the years?

The answer is: no.

The U.S. has set up an exit tax system to prevent the wealthy from avoiding taxes through status changes. Once a person renounces U.S. citizenship or terminates their tax residency, and if certain conditions are met—such as having a worldwide net worth exceeding $2 million or an average taxable income over the past five years reaching a statutory standard—they are deemed a "covered expatriate" and must settle taxes on accumulated gains.

For founders of listed companies, this threshold is almost inevitably crossed.

**So, what is the most severe measure? The "deemed sale" principle.**

U.S. tax authorities assume that on the day of exit, you sell all your assets worldwide at market value. This is a legal "hypothetical," not an actual transaction, but the tax calculation is based entirely on this assumed sale.

In other words:
- Use the fair market value on the exit day as the "sale price"
- Use the original cost basis as the "purchase price"
- Tax the difference in one lump sum

Even if the assets are never actually sold, this unrealized gain must be taxed immediately.

Taking Yin Zhiyao as an example, as a founder, his cost basis in shares is extremely low, and he has held them for a long time without reducing holdings, resulting in huge unrealized gains on paper. Once the deemed sale rule applies—even if only to part of his holdings—the resulting tax base could reach tens of billions of yuan. Under the combined effect of long-term capital gains tax rates and additional levies in the U.S., the tax burden can easily amount to hundreds of millions or billions of yuan.

**Why must one genuinely reduce stock holdings to pay taxes?**

Because taxes must be paid in cash. Without reducing holdings, it’s impossible to establish a clear, compliant, and verifiable source of funds for tax payment. This also explains why the reduction ratio is so small but must be executed in reality—not as a reassessment of company value, but as a necessary cost when disengaging from the U.S. tax system.

It’s important to note that this "heavy tax" mainly occurs at the time of expatriation from the U.S. system. Currently, China does not tax unrealized gains on stocks, but in terms of tax residency switching and cross-border compliance, genuine reduction of holdings and lawful tax payment are almost the only prudent options.

**The underlying logic is quite simple:** The U.S. doesn’t care where you go in the future; it only cares about how much untaxed income you have accumulated under its tax system. When you choose to leave, these unrealized gains will ultimately need to be settled in one go.

For high-net-worth individuals with assets exceeding $2 million, this is an unavoidable institutional cost.