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Tax policy shift aligns with global norms; focus on cross-border transparency and CRS data use
China’s tax authorities are increasing efforts to enforce the declaration and taxation of overseas income earned by Chinese tax residents, signaling a move to bring the country’s tax enforcement practices in line with international standards, including those adopted by jurisdictions such as the United States, Japan, and the European Union.
The recent move comes amid growing reports that Chinese mainland investors holding foreign securities, particularly U.S. and Hong Kong-listed stocks, have received compliance reminders from local tax offices, urging them to review and declare global income as required by Chinese law.
Global Taxation Principle Applies to Chinese Residents
“Declaring foreign-sourced income is not unique to China—it’s the global norm,” said Li Na, Associate Professor at East China University of Political Science and Law.
“Under Chinese tax law, individuals who live in China or spend more than 183 days in the country within a tax year are classified as tax residents, and must report their worldwide income.”
This aligns with tax systems in developed economies, where residency-based taxation obligates individuals to declare global earnings, including foreign salaries, interest, dividends, and capital gains.
Legal Basis and Reporting Mechanism
Since 2020, the Ministry of Finance and the State Taxation Administration (STA) have clearly stipulated that Chinese tax residents must report overseas income during their annual Personal Income Tax (PIT) filings. Categories of taxable foreign income include:
- Employment income
- Capital gains (e.g., stock sales)
- Dividends and interest
- Income from foreign real estate or business activities
To simplify the process, the STA’s PIT mobile app and online portal now allow users to submit overseas income declarations digitally. For more complex cases, taxpayers may still visit local tax bureaus for manual filing.
Capital Gains and Offsetting Rules
He Yang, Executive Director of the China International Tax Center at the Central University of Finance and Economics, explained that capital gains from overseas securities transactions are taxed per transaction.
While taxpayers may offset gains with losses within the same year, cross-year loss carryforwards are not permitted under current Chinese regulations.
Compliance Measures and Legal Risks
In recent months, tax bureaus in Shanghai, Hubei, Shandong, and Zhejiang have publicized enforcement cases involving individuals who failed to report foreign income. Authorities are now deploying a structured five-step compliance strategy:
- Reminder notice
- Follow-up communication
- Formal interview
- Investigation
- Public disclosure, if warranted
“Receiving a message from the tax authority is not an immediate penalty—it’s a prompt for self-review,” said He.
Taxpayers are encouraged to respond with accurate documentation.
Automatic Data Sharing Under CRS
With China’s active participation in the OECD’s Common Reporting Standard (CRS), tax authorities now have access to financial account information from over 100 partner jurisdictions.
This allows the STA to cross-check declared income with foreign-held bank and investment accounts, significantly enhancing its ability to detect underreporting and enforce compliance.
Zhang Wei, Dean of the School of Taxation at Jilin University of Finance and Economics, emphasized:
“Failing to declare overseas income is no longer a low-risk oversight. Tax transparency is now the global standard, and the CRS has made offshore income more visible than ever.”
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