Analysis: China’s Tax Dragnet Closes In on Overseas Assets

In July 2025, Beijing’s tax authorities initiated a comprehensive verification campaign focused on the overseas income of individuals, especially targeting the tax years 2022 to 2024. Numerous investors with foreign assets, including those generating gains from Hong Kong and U.S. stocks, interest on overseas bank deposits, and other international sources, were contacted via text messages and phone calls. These individuals were urged to self-report and settle any outstanding taxes on their foreign investment income. This campaign is significant in its breadth, encompassing income from stock trading, rental income, and bank interest outside mainland China. The move reflects a broader effort to ensure compliance among Chinese residents with overseas assets and income streams. [para. 1]

The enforcement drive is underpinned by tax authorities systematically acquiring data on the overseas financial accounts of Chinese residents via the Common Reporting Standard (CRS), a global information-sharing mechanism. For example, Chinese residents who deposited property sale proceeds into offshore accounts or received rental income from foreign properties had their transactions identified and reported back to Chinese tax authorities through CRS. Consequently, individuals have been requested to declare and pay back taxes, especially on Hong Kong stock trading profits and overseas bank interest, which are now primary enforcement targets. [para. 2]

The central tax at issue is individual income tax, owing to China’s tax system, which taxes residents on their worldwide income based on residency and source. A Chinese tax resident is generally categorized as someone domiciled in China or present for at least 183 days in a tax year. In contrast to individual income tax, other principal taxes in China, such as value-added tax and consumption tax, only apply to domestic activities, thus explaining their exclusion from this campaign. [para. 3]

Many investors question the tax disparity between domestic and overseas income—why interest or gains from Chinese accounts are tax-free, but those from abroad are not. The answer lies in the geographic scope of China’s tax incentives: exemptions for interest or stock gains apply only to domestic institutions or stock connect programs, not directly held foreign assets. Overseas income falls outside these exemptions. [para. 4]

For tax calculations, gains from foreign stock trading are treated as “income from the transfer of property” and taxed at a flat 20% per transaction. While the law does not provide for loss-offsetting, in practice, if taxpayers can present comprehensive records and prove difficulty in per-transaction calculation, authorities may accept net gains over the year as a basis for taxation. Dividends are taxed separately at 20%. [para. 5]

Late-payment fees accrue daily at a rate of 0.05% (around 18.25% annually) on overdue taxes, with no upper limit. Timely compliance—paying requested taxes and fees within the notification period—generally spares individuals from fines. The longer the delay or look-back period, the heavier the burden from mounting late fees. [para. 6]

China’s CRS participation since 2018, covering 110+ countries and regions, has enhanced tax authority access to detailed account-level data, including balances, interest, dividends, and asset sale proceeds. For the current campaign, the main CRS data relates to 2022–2023 income, with 2024 data due by September 2025. The integration of CRS information with the advanced Golden Tax System Phase Four enables precision enforcement, with investigations expanding beyond Beijing to provinces like Hubei, Shandong, Zhejiang, and Shanghai. This reflects both technological advancement and the expanding geographic focus of tax compliance. [para. 7][para. 8]

For cross-border investors, compliance can be achieved through several strategies: proactively declaring overseas income, using domestic channels like stock connect for Hong Kong investments to secure tax exemptions, utilizing less clear-cut vehicles such as insurance or trusts, and managing tax residency to potentially reduce the reporting obligation. Changing residency status (such as becoming a Hong Kong tax resident) may limit Chinese taxation on certain foreign income, but requires strict adherence to legal definitions and durations. [para. 9][para. 10][para. 11][para. 12]

Ultimately, digitalization and global information exchange mark the end of the era of “invisible” offshore income. Chinese tax residents must recognize that cross-border investment income is squarely under the ambit of Chinese tax law and that rigorous compliance is vital for long-term asset protection. [para. 13]