In Depth: China’s Tax Collectors Target Global Investment Income

Liu Mo, an investor from Wuhan, was recently contacted by local tax authorities after years of actively trading U.S. stocks through platforms like Futu and Tiger Brokers. He received multiple reminders to review and ensure the reporting of any overseas income going back to 2021, reflecting a new wave of enforcement targeting undeclared foreign investment earnings among Chinese residents [para. 1][para. 2][para. 3]. This development is part of a broader push by Chinese tax authorities to enforce long-standing global income tax rules, which legally require residents to declare and pay tax on all global income, not just domestic earnings [para. 2][para. 5].

Recently, many Chinese investors have received similar notifications via text, app alerts, and phone calls, particularly those involved in overseas securities trading [para. 1][para. 3]. Authorities have specifically focused on previously undeclared interest, dividends, and capital gains from foreign securities [para. 3]. In March 2024, tax bureaus in Hubei, Shandong, Zhejiang, and Shanghai made public announcements about using big data analytics to issue risk alerts for unreported offshore income. In various cases, taxpayers were ordered to pay overdue taxes and penalties, with one resident in Hubei paying as much as 1.4 million yuan (roughly $194,188) [para. 4].

The enforcement uptick is largely driven by China’s involvement since 2017 in the Common Reporting Standard (CRS)—a global financial data-sharing system developed by the OECD to combat tax evasion. Under CRS, more than 100 jurisdictions—including Hong Kong, Singapore, and the U.K.—automatically share data about residents’ overseas bank and brokerage accounts, including balances, dividends, and capital gains, with their home tax authorities [para. 9][para. 10]. For Hong Kong-based brokers like Futu, information on Chinese clients is sent to Hong Kong’s tax authorities, who then forward it to mainland tax offices [para. 11]. According to legal professionals, Chinese authorities initially focused on CRS-reported accounts with balances over $1 million, though smaller accounts may be targeted as the system matures [para. 12].

China treats capital gains from overseas stock trading as property transfer income, subject to a 20% flat tax. However, ambiguity exists as to whether this tax is calculated per transaction, day, month, or year. Some authorities have accepted net gains over a period (e.g., annually), allowing for offsetting profits and losses, which could result in no tax owed if no net gain is realized [para. 13][para. 14]. Recovery efforts mostly target income from 2022–2024, as laws limit backtracking to three years, or five in special cases [para. 15].

Importantly, China’s global tax rules apply to all tax residents, including foreigners spending at least 183 days in China in a year [para. 16]. Some mistakenly believe they can evade Chinese taxes by holding accounts outside CRS countries (like the US), but legal expertise confirms the obligation is based on tax residency, not data-sharing agreements [para. 17][para. 18]. Concealing such accounts is considered tax evasion under Chinese law [para. 19], which can lead to serious penalties, though criminal cases have been rare [para. 20].

As enforcement continues, many rules remain unclear. Tax experts advise those contacted by authorities to carefully review their accounts, make accurate disclosures, and seek professional advice in uncertain situations to minimize risk and avoid unnecessary penalties [para. 21][para. 22]. [para. 1][para. 2][para. 3][para. 4][para. 5][para. 9][para. 10][para. 11][para. 12][para. 13][para. 14][para. 15][para. 16][para. 17][para. 18][para. 19][para. 20][para. 21][para. 22]