CRS in practice: how mainland China is checking residents' overseas income

Context

Under China's Individual Income Tax Law, a tax resident is taxed on income from both inside and outside the mainland. The detailed rules for overseas income have been in force since 2020, when the Ministry of Finance and the STA issued Announcement No. 3 of 2020 on overseas income. For many people, however, the rule felt theoretical. Overseas brokerage accounts, Hong Kong bank deposits and offshore holding companies were rarely reported, and enforcement was sporadic.

The Common Reporting Standard changed that. Under CRS, financial institutions in participating jurisdictions identify account holders who are tax resident elsewhere and report balances and income to their local tax authority, which then exchanges the data with the account holder's home jurisdiction each year. Mainland China has been exchanging information under CRS since 2018. Hong Kong, Singapore and most major offshore centres participate.

What changed

Throughout 2025, people with overseas income began receiving text messages, calls and app notices from local tax bureaus asking them to review and, where necessary, correct their filings. Four provincial and municipal tax bureaus (Hubei, Shandong, Shanghai and Zhejiang) published cases in March 2025 in which residents who had not reported overseas income paid tax and late-payment surcharges of RMB 184,800, RMB 1.2638 million, RMB 127,200 and RMB 1.413 million respectively after being prompted.

On 16 January 2026, the STA confirmed through Xinhua that it has, since last year, been reminding taxpayers to self-review income received from overseas in 2022 to 2024. It pointed out that under the Tax Collection and Administration Law, where tax is underpaid because a taxpayer failed to file or made a calculation error, the authorities can recover the tax and surcharges within three years, and that cases of tax evasion are dealt with under the law.

The same day, Caixin reported that claims of back taxes reaching as far as 2017 were a misreading. According to an STA source, the authorities are mainly asking taxpayers to check the most recent three years, with some larger cases asked to review up to five. The emphasis, for now, is on self-correction rather than formal recovery.

How overseas income is taxed

Announcement No. 3 of 2020 sets out three treatments:

• Comprehensive income earned overseas (wages, service fees, author's remuneration and royalties) is combined with mainland comprehensive income and taxed at progressive rates from 3% to 45%.
• Business income earned overseas is combined with mainland business income at rates from 5% to 35%, with restrictions on using overseas losses.
• Other categories (interest, dividends and bonuses, rental income, gains on transfer of property, and incidental income) are calculated separately and generally taxed at a flat 20%.

Foreign tax paid can be credited, subject to a per-country limit, and unused credits can be carried forward for five years if supported by proper documentation. Residents must file overseas income each year between 1 March and 30 June of the following year. For 2025 income, that window closes on 30 June 2026.

Two practical points are often misunderstood. First, CRS shows balances and gross income, not every transaction; an increase in an account balance is not automatically taxable income, but the taxpayer needs to be able to explain it. Second, a dividend paid to an offshore company is not personal income until it reaches the individual, although separate anti-avoidance rules can apply to low-taxed controlled companies that retain profits without a business reason.

Implications for investors, families and businesses

For individual investors with Hong Kong or overseas brokerage accounts, the first task is reconstruction: gather annual statements for 2022 to 2025, identify interest, dividends and realised gains, and match foreign tax paid to each item.

For families, the questions widen to include offshore companies, insurance policies and trust arrangements. Each needs to be analysed on its own facts. The direction of travel is clear: the authorities increasingly have the data, and the cost difference between voluntary correction and a finding of evasion is large. Under the Tax Collection and Administration Law, late payment attracts a surcharge of 0.05% per day, while evasion can attract penalties of 50% to five times the unpaid tax.

For business owners who are mainland residents but receive salaries, directors' fees or dividends from Hong Kong companies, payroll and dividend records should be reconciled with what is declared on the mainland side.

Questions to consider

• Am I a mainland tax resident for each of the years in question, and is that position documented?
• Can I produce annual statements for every overseas account, and do I know what each figure represents?
• Have I reported overseas income in the correct category, and claimed foreign tax credits with proper evidence?
• Do any offshore companies or other structures in my name retain profits that could attract attention?
• If I receive a reminder, who will help me respond accurately and on time?

Closing

CRS has not changed China's tax law; it has changed what the tax authorities can see. With the annual filing window open until 30 June, mainland residents with overseas assets have a natural opportunity to bring their records up to date. The earlier the review starts, the more options remain.