China is intensifying its collection of taxes on foreign income, expanding its scrutiny to include less wealthy citizens after focusing primarily on ultra-wealthy individuals last year, reported Bloomberg today.
Authorities are examining a wide range of offshore income, including investment profits, dividends, and employee stock options. These incomes could be taxed up to 20%.
In recent months, tax service providers have seen an increase in clients with less than one million dollars (845,000 euros) in assets, contrasting with the 2024 campaign targeting individuals with wealth over 10 million dollars (8.45 million euros). Chinese residents with offshore investments, especially in U.S. and Hong Kong stocks, are among the main targets.
Beijing aims to boost tax revenue and reduce a record fiscal deficit after increasing stimulus efforts to counter the effects of U.S. tariffs. Local governments, pressured by the prolonged real estate sector crisis and deleveraging, can no longer rely on land sales or excessive borrowing.
From January to April, total central government revenue fell by 1.3% year-on-year, while expenditure rose by 7.2%, causing the deficit to surge over 50% to more than 360 billion dollars (304 billion euros) — the highest ever for the period, according to Bloomberg calculations based on data from the Ministry of Finance.
Simultaneously, Chinese investors have been transferring more wealth abroad amid the economic slowdown and increased scrutiny of the private sector. The “common prosperity” policy promoted by Chinese President Xi Jinping has also affected confidence, although Beijing has recently launched efforts to restore it among businesspeople.
This year alone, mainland investors have channeled about 658 billion Hong Kong dollars (71 billion euros) into Hong Kong-listed stocks via the cross-border link, more than double the net outflows recorded in the same period of 2024.
According to a source, the Ministry of Finance sees room for increasing revenue through tighter scrutiny of taxable income not declared or identified.
Various tax services in Beijing, Shanghai, and provinces like Zhejiang have issued notices for residents to review their foreign earnings and submit declarations by June 30, the deadline for 2024 income filings.
Since March, local authorities have coordinated efforts after analyses of large databases revealed residents who had omitted offshore income. In some disclosed cases, the amounts collected in overdue taxes and fines amounted to 127,200 yuan (about 14,960 euros).
This new offensive follows China’s 2018 adherence to the Common Reporting Standard (CRS), a global information-sharing system aimed at preventing tax evasion. Although the legislation has always stipulated global income taxation, the rule only began to be applied more systematically last year.
According to Bloomberg Intelligence estimates, personal financial assets in mainland China could reach 80 trillion dollars (67 trillion euros) by 2030, with foreign investments rising to 11% of the total, compared to 8% in 2023.
