CHINA: Chinese tax authorities urge to declare offshore earnings in line with global practices

Chinese tax authorities are stepping up efforts to ensure households declare and pay taxes on overseas income, as part of a broader initiative to enhance cross-border tax transparency and bring China’s enforcement in line with international standards, industry experts said in an exclusive interview with China Daily on Thursday.

They made the comments as earlier media reports said that Chinese residents investing in Hong Kong and United States stocks have received notices from local tax authorities, urging them to review their domestic and overseas income and tax filing declarations.

Li Na, associate professor at East China University of Political Science and Law, said: “Declaring overseas income is not just a Chinese requirement. It is standard practice in most countries and regions. Individuals who live in China or spend more than 183 days here in a year are considered tax residents and must report global income under Chinese law.”

“Countries and regions like the US, Japan, and the European Union also tax residents on their worldwide income, giving governments the jurisdiction to enforce compliance and prevent tax evasion,” Li said.

In 2020, China’s Ministry of Finance and the State Taxation Administration outlined procedures for residents to declare overseas earnings. This includes income from foreign employment, interest, dividends, or gains from selling overseas assets such as stocks.

According to He Yang, executive director of the China International Tax Center at the Central University of Finance and Economics, residents must report such income in the following year as part of their annual personal income tax filings.

To simplify the process, tax authorities have enabled overseas income declarations on the personal income tax mobile app and web portal. For more complex cases, in-person filing at local tax offices remains an option.

Regarding stock trades, He said capital gains are taxed on a per-transaction basis but clarified that losses and gains within the same year may be offset, which has been a common practice globally. However, cross-year offsets are not permitted in China, he said.

At the end of March this year, tax authorities in Shanghai, Hubei province, Shandong province, and Zhejiang province published cases involving individuals who were investigated for failing to lawfully declare personal income tax on overseas earnings.

He emphasized that messages and calls from tax authorities are typically part of a “five-step” compliance approach: reminder, follow-up, interview, investigation, and public disclosure. “Receiving a reminder doesn’t mean punishment. It’s a prompt for taxpayers to review their income records and respond with supporting documents if needed,” he said.

Zhang Wei, dean of the School of Taxation at Jilin University of Finance and Economics, warned that taxpayers who fail to declare overseas income face legal risks.

“China participates in the international Common Reporting Standard, which enables automatic exchange of financial account information with over 100 jurisdictions. Using CRS data, Chinese tax authorities can cross-check declared income with foreign account records, identifying underreporting with increasing precision,” he said.