China Strengthens Anti-Tax Avoidance: Impact of CRS and Global Income Reporting

China Strengthens Anti-Tax Avoidance: Impact of CRS and Global Income Reporting

China’s anti-tax avoidance regulations have entered a new phase with the strengthened implementation of the Common Reporting Standard (CRS), imposing stricter requirements on global income reporting for taxpayers.

1. Impact of CRS Implementation

Automatic Information Exchange

China has implemented CRS with over 100 countries and regions. For foreign individuals classified as Chinese tax residents (staying in China for 183 days or more, or having a habitual residence), information about their overseas financial accounts—including deposits, investments, and insurance policies—can be exchanged with Chinese tax authorities.

Reporting Obligations

Ø  Tax Resident Status: Those meeting the criteria of “Chinese tax residents” must report their global income.

Ø  Overseas Assets: While properties and equities aren’t directly covered by CRS information exchange, any income derived from them, such as rental earnings or dividends, must be proactively declared.

2. Risk Mitigation Measures

Account Self-audit: Taxpayers should review their overseas accounts in CRS-participating countries, especially those with balances exceeding $250,000, which may be prioritized for information exchange.

Income Categorization:

1.      Active Income: Salaries and service fees are generally taxable in China.

Passive Income: For dividends, interests, etc., taxpayers may apply for reduced tax rates (e.g., 10% dividend tax rate under the China-Singapore tax treaty) if eligible.

2.      Proof of Tax Payment: Taxpayers may need to provide overseas tax payment certificates to avoid double taxation when required by Chinese tax authorities.

3. Notable Case

An expatriate executive who lived in China for five consecutive years failed to report interest income from a Hong Kong bank account. After CRS - triggered information exchange, the individual faced an audit, resulting in back taxes, late fees, and fines.

As CRS - related supervision tightens, both individuals and enterprises are advised to review their global income reporting practices, seek professional tax advice, and ensure compliance to avoid legal and financial consequences.