Efforts on to ensure deeper tax compliance

China is stepping up the enforcement of a long-standing policy requiring residents to pay personal income tax on gains accruing from overseas investments, which industry experts said reflects improved access to cross-border financial data and a broader effort to standardize tax compliance across jurisdictions.

A well-structured tax system will help attract high-quality foreign capital and promote the healthy development of the A-share market, the experts added.

The comments came after social media platforms in China saw a surge in posts from investors sharing tax payment notices, many of which refer to a 20 percent personal income tax on overseas investment income such as dividends and capital gains.

He Yang, executive director of an international tax research center at the Central University of Finance and Economics, said: "The tax rules aren't new, but the enforcement mechanism has become more effective. This is largely driven by greater data availability and system upgrades."

The increased enforcement coincides with the expansion of China's golden tax phase IV system, a robust data analytics platform that compares invoices, bank transactions, contracts and other relevant data to identify discrepancies and signs of tax evasion, and its integration with the Common Reporting Standard, an international framework for the automatic exchange of financial account information.

The CRS system now enables Chinese tax authorities to access offshore financial data from more than 100 countries and regions, with coverage expected to grow to over 150 jurisdictions by 2025.

Zhang Wei, dean of the School of Taxation at Jilin University of Finance and Economics, said: "Through CRS and domestic tax systems, authorities can now match offshore financial information with self-reported tax filings. That makes it easier to identify underreported income."

According to the country's official 12366 tax service platform, China's current practice treats profits from overseas securities trading as "property transfer income", which is taxed on a pertransaction basis. This means investors are required to pay 20 percent tax on each profitable trade, while losses cannot be carried over across years.

While the tax policy remains unchanged, analysts say the timing and focus of enforcement may reflect broader efforts from authorities to discourage excessive and unchecked capital outflows.

The tightening of tax policies on overseas investment could trigger a series of ripple effects for China's A-share market. Some investors may keep their funds within the Chinese mainland, which will support the stable development of A-shares, experts said.

Yu Fenghui, an independent economist, said that some capital that would have flowed into markets such as the United States may reassess its allocation strategy due to rising tax costs and reduced returns. "But overall, that effect will likely be short-term. In the long run, a well-structured tax system will help attract high-quality foreign capital and promote the healthy development of the A-share market," Yu said.