Introduction
Breaking news!
China's official announcement reveals a significant increase in the scrutiny of foreign income.
This income will now be subject to value-added tax (VAT) again, and all must be reported.

01: China Officially Announces Strengthening Foreign Income Taxation

With the global economy becoming increasingly integrated, more Chinese residents are obtaining foreign income through various channels. As a result, tax compliance regarding foreign income has become a key issue of public concern. Recently, China's central bank-run media, Financial Times, released an article explicitly stating that income from foreign stock trading will now also be taxed.

In late July, the Ministry of Finance announced that starting from August 8, 2025, interest income from newly issued national bonds, local government bonds, and financial bonds will once again be subject to VAT.

Recently, some taxpayers received notifications from tax authorities informing them that they need to declare and pay taxes on their foreign income.

Some individuals expressed confusion about whether they need to pay taxes on stock transactions, particularly when they have both gains and losses. Others questioned how to account for the gains and losses from long-term stock holdings and whether they could offset losses against other income.

According to Chinese personal income tax law, income from stock transactions is classified as capital gains, and a 20% tax rate is applied on a per-transaction basis. Domestic stock trading is temporarily exempt from income tax, but foreign stock trading is not exempt and must be declared for taxation in the following year.

Tax authorities allow taxpayers to offset gains and losses within the same tax year, but cross-year offsets are not allowed. It is also noted that failure to declare or provide false information about foreign income will result in tax payments being collected retroactively, along with penalties and late fees, which can affect the individual's tax credit. In severe cases, tax authorities may initiate an investigation, leading to potential tax penalties.

Authorities in regions such as Shanghai, Zhejiang, and Shandong have already notified several investors to pay back taxes on foreign investment income.

02: The Increasing Transparency of Foreign Income Data

As personal global income transparency increases, and with the exchange of tax information between countries becoming more common, tax authorities now have more ways to access foreign income and tax data.

The primary tool for this is the CRS (Common Reporting Standard), a global framework for automatic exchange of tax information between countries. For example, if you are a tax resident in China but have a bank account in Australia, Australian financial institutions are required to report your account information under CRS rules. This data is then exchanged between Australian and Chinese authorities, revealing information such as deposits, trust accounts, insurance contracts, and investments.

CRS ensures the sharing of account details, including balances, interest, dividends, and proceeds from the sale of financial assets, among other financial data.

03: Detailed Explanation of Foreign Income Taxation

Who Needs to Pay Taxes on Foreign Income?

Chinese residents, including those holding Australian passports or permanent residency, must pay taxes on foreign income. The tax residency definition is broader than just the “residency” concept.

According to the personal income tax law, a resident is anyone who either has a domicile in China or lives in China for at least 183 days in a tax year.

Which Foreign Income is Subject to Tax?

The following income sources are considered foreign income and are subject to personal income tax:

Income from services provided abroad, such as employment or contract work.

Royalties and payments from foreign companies or organizations.

Income from licensing rights used outside China.

Earnings from production and business activities conducted abroad.

Interest, dividends, and royalties from foreign companies or non-resident individuals.

Rental income from property used outside China.

Income from the sale of foreign assets, such as real estate or stocks in foreign companies.

Accidental income from foreign sources.

Other income as specified by the Ministry of Finance and the State Taxation Administration.

Should Foreign Income Be Combined with Domestic Income for Reporting?

It depends on the type of income:

Comprehensive income from abroad should be reported together with domestic income.

Business income from abroad should be combined with domestic business income. Losses from foreign business income cannot offset domestic income but can be carried forward for future years.

Interest, dividends, and capital gains from foreign assets should be reported separately.

Do You Need to Pay Taxes Again If Foreign Taxes Have Already Been Paid?

If taxes have already been paid on foreign income, individuals can claim a tax credit for the amount paid, subject to certain limits. The tax credit is calculated based on the proportion of foreign income to total global income.

Conclusion

Tax compliance is a civic duty. If you earn foreign income, you must report it according to the law. With the aid of the CRS system and big data analysis, the veil covering foreign income is gradually being lifted, significantly increasing transparency.