Coordinated Action: Mainland China Targets Unreported Overseas Income of Individual Taxpayers

News Overview

Between March 25 and 26, 2025, the tax authorities in Hubei, Shandong, Shanghai, and Zhejiang launched a coordinated campaign within a 48-hour window to investigate unreported foreign income of Chinese tax residents. In September 2014, China officially committed to adopting the Automatic Exchange of Financial Account Information standard (AEOI) under the Common Reporting Standard (CRS) framework and completed its first exchange of information with other CRS-participating jurisdictions in September 2018. This included data from key countries like the UK, France, Germany, Switzerland, and Singapore, as well as traditional offshore financial centers like the Cayman Islands, British Virgin Islands (BVI), and Bermuda—covering account balances, investment income, and more.This latest action saw the identification of several representative cases across the four regions, with tax recoveries ranging from RMB 127,200 to RMB 1,263,800. The campaign followed a five-step strategy: “reminder and notification, push for rectification, interviews and warnings, case initiation and investigation, and public exposure.”

FinTax Commentary

① Announcement Highlights

This wave of tax investigations showed two clear trends. First, the scope of foreign income scrutiny has expanded to include middle-class taxpayers. Unlike previous enforcement efforts that primarily targeted high-net-worth individuals, this round involved taxpayers with moderate-to-upper income levels. For example, in a case released by Zhejiang tax authorities, the taxpayer was required to pay back RMB 127,200 in taxes. This shift signals that tax regulators are now also focusing on overseas income earned by the middle-income group in mainland China.

Another key feature is the complementary nature of each region’s audit focus. Zhejiang deals with private capital flowing across borders, Shanghai focuses on offshore financial transactions, Shandong covers traditional manufacturing going global, and Hubei represents emerging manufacturing industries. Together, they reflect the mainstream scenarios in which the middle class earns overseas income.At the same time, the coordinated timing of these announcements might hint at unified directives from higher-level authorities. It also suggests that the previous expectation of “voluntary reporting” may gradually be replaced by more robust and substantive enforcement by tax authorities.

② How Does Mainland China Tax Overseas Income of Its Residents

Mainland China follows a worldwide taxation principle for individuals who are considered tax residents. This principle was established as early as 1998 with the release of the Provisional Measures on the Administration of Individual Income Tax on Foreign-Sourced Income, and it has remained in effect ever since. In early 2020, the Ministry of Finance and the State Taxation Administration jointly issued the Announcement on Individual Income Tax Policies Related to Foreign-Sourced Income (Announcement No. 3 of 2020, hereinafter referred to as “Announcement No. 3”), which further clarified how overseas income earned by Chinese resident individuals should be handled and taxed.

At its core, the principle of worldwide taxation is about protecting national tax sovereignty and promoting social fairness. Based on this principle, mainland China’s general requirements for taxing residents’ overseas income are as follows:

– Who Qualifies as a Tax Resident?

According to the Individual Income Tax Law of the People’s Republic of China, a person is considered a Chinese tax resident if they meet either of the following conditions:Has a domicile in China: This refers to individuals who have habitual residence in China due to household registration, family, or economic interests. Even if working or living abroad for a long time, if the person hasn’t cut ties with their household registration or family in China, they can still be regarded as a resident; Stays in China for 183 days or more: If a person stays in China for a total of 183 days or more within a tax year (January 1 to December 31), they are deemed a resident, even without a domicile.

– What Kind of Income Is Taxable?

Resident individuals are required to declare and pay individual income tax on all income earned both inside and outside of China, under the Chinese Individual Income Tax Law.However, there’s an exception for those who do not have a domicile in China but have lived in the country for 183 days or more in a tax year, and within the previous six years, there was at least one year when they either stayed in China less than 183 days, or left China for more than 30 days at once.In this case, the individual is exempt from paying income tax on foreign-sourced income paid by overseas entities or individuals for that year.

③ What Might Web3 Participants Need to Know About Taxes

Announcement No. 3 clearly outlines the types of taxable foreign-sourced income. These fall into three major categories:comprehensive income sourced from outside China, such as: salaries and wages, labor service remuneration, authors’ remuneration, and royalties;business income earned overseas; other income, including: interest, dividends, and bonuses, capital gains tax, income from property leasing, and occasional income.These categories match those for domestic income, but the tax treatment is slightly different. Foreign-sourced comprehensive income and business income are combined with their domestic counterparts for tax calculation.However, other types of income earned overseas are not combined with domestic income—they are taxed separately.

Right now, there’s still a lot of debate around how virtual digital assets should be taxed in mainland China. So let’s take a look at a few common scenarios for crypto investors and Web3 participants:

– Mining operations run overseas

If you’re running a mining business abroad—especially a commercial one with consistent operations—tax authorities may categorize it as business income. In that case, you’d be allowed to deduct costs like equipment and electricity, which fits with the capital-intensive and continuous nature of mining.But if you’re mining crypto personally rather than as a business, things get trickier:If treated as occasional income, the classification aligns with the random nature of mining rewards. But this could lead to unreasonably high tax burdens since costs like electricity or hardware can’t be deducted.If treated as capital gains from property transfer, then you run into the issue of valuation. Because virtual digital assets lack stable and recognized valuation benchmarks, it’s hard to calculate your gains accurately, which can lead to disputes over how much tax you owe.

– Trading crypto for profit

For mainland residents making money from crypto trading, the key question is whether the activity is commercial in nature.If your trading has a fixed location, employs a team, and occurs with high frequency, tax authorities may classify it as business income. This comes with stricter tax requirements.For casual investors, gains are usually treated as capital gains, and only the appreciation in value is taxed. However, you must provide complete cost documentation to prove the original value of the crypto. This helps avoid double taxation or an unfairly high estimated profit margin.

④ What Should Web3 Participants in Mainland China Pay Attention To

If you delay or deliberately hide your overseas income, China’s tax authorities have put in place a layered system of legal consequences.According to Articles 32 and 63 of the Law on the Administration of Tax Collection, failing to declare income on time—or submitting false declarations—can trigger progressive penalties, including back tax payments, daily late fees of 0.05% on overdue taxes (starting the day after the deadline), administrative fines or even criminal charges.This can build up to significant financial pressure. If tax evasion is confirmed, the authorities will recover the full amount of unpaid tax and may also impose tiered fines ranging from 50% up to 500% of the owed amount. The exact penalty depends on whether the taxpayer acted intentionally and how complex the concealment methods were.If the amount involved reaches the threshold for criminal prosecution, the case will be handed over to the judicial system.

With global tax transparency on the rise and the rapid development of tax tech (RegTech), taxation on cross-border crypto income is becoming a major focus. Today, China’s tax authorities—using tools like CRS data exchange—have deep access to core data such as foreign account balances and investment income.For crypto investors and Web3 participants, now might be a good time to consider optimizing your tax affairs and reporting honestly. Looking at the cases exposed in this wave of audits, the cost of late fees and fines far exceeds the original tax due.crypto investors and Web3 participants in China can take a two-step approach to stay compliant and avoid future tax issues. Firstly, review your previous overseas income—either on your own or with professional help—to figure out whether any of it was taxable, and take corrective action if needed.Secondly, Regularly update your tax planning in line with current laws and regulations. The goal is to stay compliant while minimizing your tax burden as much as possible.