Caixin Weekly | Tighter Taxation on Overseas Income (AI Translation)

财新周刊｜境外收入征税趋严

1. In recent months, many Chinese taxpayers—especially those trading Hong Kong and US stocks—have reported receiving messages, calls, or app notifications from tax authorities urging them to self-examine and declare their overseas income according to the law. For example, “Xiang Nan,” a Shanghai resident, was contacted by his local tax bureau in June and told to report overseas earnings for 2023 and 2024. He reported net profits from trading US stocks via online brokers on the final deadline day, June 30, 2024. [para. 1][para. 2]

2. China’s Personal Income Tax Law has, since 1980, mandated that Chinese tax residents must declare both domestic and overseas income. According to Professor He Yang from the Central University of Finance and Economics, this global taxation principle is standard, though some jurisdictions (like Hong Kong and Singapore) exempt foreign-source incomes. The arrival of CRS (Common Reporting Standard) and greater international data sharing have made overseas income more visible to authorities, thus strengthening enforcement. China joined the OECD’s CRS in 2015 and has shared financial account data with over 100 other countries since September 2018. [para. 3][para. 4]

3. Two main kinds of overseas share-trading income are taxed: profits from trades (subject to a 20% personal income tax) and dividends (also 20%). Domestically, however, A-share profits have been exempt from tax since the 1990s, and dividends for shares held more than a year are also temporarily exempt. Some confusion exists among traders, but the current rule is that annual net profit is taxed at 20%; losses negate taxation—unrealized gains/losses do not count. [para. 5][para. 6][para. 7]

4. Although Chinese tax law nominally taxes capital income at lower rates (20%) compared to labor income (up to 45%), enforcement on capital gains has traditionally been much looser, creating the label “salary tax” for personal income tax. Technical advances are making stricter enforcement of taxes on capital income inevitable in the future. [para. 8][para. 9]

5. Currently, annual net overseas trading profits can offset losses within the same year but not across years—a more lenient regime considering supervisory capabilities. Other countries, such as the US, allow for both short-term and long-term capital gains, with different rates (0%, 15%, or 20% for long-term, and 10-37% for short-term), and losses can often be carried forward to offset future gains. In China, however, full integration of capital income into the comprehensive tax system has not occurred, and rules around loss carry-forwards depend on broader fiscal reform. [para. 10][para. 11][para. 12]

6. Since May-June 2025, there’s been a significant increase in reminders to taxpayers about declaring overseas stock income for 2022-2024. The process usually involves app-based reporting, and systems automatically calculate a 20% tax on declared profits. When dividends have already been taxed at source (e.g., the US withholds 10-30% on dividends), this can be credited against Chinese tax liability. For Hong Kong stocks, profits and dividends are usually tax-free locally, so mainland investors must fully pay the 20% tax to China, though some investments via “Stock Connect” are tax-exempt until the end of 2027. [para. 13][para. 14][para. 15][para. 16][para. 17]

7. Employees with stock-based incentives at overseas-listed companies are also now receiving notices. The overall tax rule is: stock options are taxed as salary when exercised, and any subsequent sale is taxed as a capital gain (20%). There are complaints of lack of clear guidance on calculation, especially regarding cost basis, fees, and whether losses can offset gains across years—rules that are much more developed in countries like the US. [para. 18][para. 19][para. 20][para. 21][para. 22]

8. Debate continues on loss carry-forwards: presently, only same-year gains/losses can offset each other for stock profits, but many experts recommend allowing multi-year carry-forwards, as in the US, to encourage accurate taxation and investor fairness. Currently, China’s individual income tax regime is still transitioning from category-based to a more unified system, with larger reforms expected to address such issues. [para. 23][para. 24][para. 25][para. 26][para. 27][para. 28]

9. The law on tax residency is clear: anyone domiciled in China, or living there for 183 days in a tax year, is a resident and must declare and pay tax on worldwide income. “Li Le,” despite mostly living in Hong Kong, was considered a tax resident due to maintaining a Chinese hukou. For expatriates, being a Chinese tax resident leads to global income tax obligations, though exceptions exist for non-domiciled people meeting certain conditions. There’s ongoing discussion about making China’s residency rules more internationally competitive, possibly with tax breaks for top foreign talent. [para. 29][para. 30][para. 31][para. 32][para. 33][para. 34][para. 35]

10. In sum, as cross-border financial information sharing grows, so does China’s capacity and determination to tax overseas income. Taxpayers are urged to carefully review their overseas financial activities for compliance, as more comprehensive and robust regulations appear imminent. [para. 36]