In recent years, China has strengthened tax inspection on overseas income, expanding its focus from wealthy individuals to ordinary retail investors and middle-class professionals. Chinese tax authorities are tracing citizens’ overseas income through global financial information exchange mechanisms, demanding additional reporting or payment of taxes, reflecting the Chinese Communist Party’s active expansion of tax revenue under financial pressure.
Chinese laws stipulate that Chinese tax residents must pay income tax on their global income, with tax rates reaching up to 20%.
According to Bloomberg, since 2025, the Chinese government has ramped up scrutiny on Chinese individuals’ overseas income, including investment returns, dividend income, net profits from stock trading, and the appreciation portion of employee stock ownership plans (ESOP). Therefore, Chinese citizens returning to China should be vigilant about tax audits.
The main reason driving this enforcement is China’s economic downturn and financial strain on local governments. According to data released by Chinese official sources and several international media outlets, in 2025, China’s national fiscal revenue was approximately 21.6 trillion yuan, while fiscal expenditure reached around 28.7 trillion yuan, resulting in a deficit of about 7.1 trillion yuan, with expenditure exceeding income by about 33%.
For local governments, their financial pressure is far greater than that of the central government. According to official Chinese data, in 2024, central government expenditure exceeded revenue by 37%, while local government expenditure exceeded revenue by 92%, making it difficult to pay salaries and forcing the government to seek new tax sources and cash flow. This is the crucial backdrop for China’s recent intensified tax collection efforts.
Although rules on individual taxation of global income have existed for many years, they have been infrequently enforced due to a lack of data. In recent years, enforcement has been driven by the Common Reporting Standard (CRS).
The CRS, led by the Organisation for Economic Co-operation and Development (OECD), is an automatic tax information exchange mechanism aimed at addressing tax issues, particularly individual income tax. The CRS requires financial institutions to conduct due diligence, ultimately enhancing tax supervision and combating cross-border tax evasion.
China has joined this global automatic information sharing mechanism. Through the CRS, the Chinese government has accumulated vast financial data from more than 120 jurisdictions, exposing mainland Chinese residents’ offshore bank accounts, balances, and asset holdings.
The Chinese authorities use this data to analyze internationally reported income and thus can continue to strengthen tax supervision.
According to information publicly released by Caixin in April of this year, local tax authorities in Jiangsu, Shenzhen, and Shanghai are requiring disclosure of individuals’ overseas income information. Shanghai authorities even mandate residents to report overseas income from the past two years starting from early 2025.
It is not a comprehensive audit. Taxpayers who distribute funds to overseas accounts or equities are flagged and receive payment notices first. Currently, around 60% to 70% of those notified have paid taxes after negotiations. Chinese officials indicate that they will continue to use the CRS to enhance cross-border tax supervision in the future.
With cross-border tax scrutiny becoming increasingly stringent, many mainland investors are beginning to rethink: What are the legal tax planning options available after making profits from overseas investments in the increasingly transparent global financial information landscape? In response, cross-border tax attorneys point out that current common tax planning strategies mainly focus on five aspects:
1. **Global Taxation by China**: Chinese tax residents theoretically need to report global income. Therefore, some individuals choose to transfer their tax residency to countries like the UAE, Canada, or Portugal through immigration or long-term overseas residency to reduce China’s tax jurisdiction over overseas income.
To be continued…