China turns to big data and public shaming in hunt for tax evaders
While local authorities can to some degree pinpoint who has cash stashed abroad, they are largely in the dark about the amount
CHINA is intensifying efforts to tax its citizens’ mountain of undisclosed overseas assets as authorities attempt to plug a widening budget deficit.
But even in Beijing’s tightly controlled society, the crackdown is proving spotty. While local authorities can to some degree pinpoint who has cash stashed abroad, they are largely in the dark about the amount.
The dragnet has involved the use of “big data” by local authorities from Beijing to Shenzhen to track down lawbreakers. They are demanding a broadening part of the population to self-declare any offshore income from 2022 to 2024. It has spurred a flood of people seeking tax planning and wealth advice, as well as triggering no small amount of anxiety over how much to disclose.
The size of overseas investments is hard to calculate. An estimated US$940 billion of so-called hot money flowed out of the country in just the first 11 months of 2025, according to an index compiled by Bloomberg Intelligence. That’s on track to be the second-biggest yearly outflow since data began in 2006.
Tom, who works for a technology firm in Beijing, was contacted by local tax officers in August. But to his surprise, they asked him to calculate his own tax bill based on a 20 per cent rate on capital gains and dividends, as well as a late charge.
He ended up paying more than 100,000 yuan (S$18,443) and then moved the two million yuan he had parked in Hong Kong shares back to a more official channel. But he’s still trying to figure out what to do with almost US$300,000 he has in US stocks.
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“It’s just surreal,” Tom said, asking to only be identified by his first name because of the sensitivity of the matter. “They don’t have a clue how much it should be.”
Investors are now asked to detail their overseas income and financial investments, calculate their missing taxes from 2022 to 2024, and pledge to be legally responsible for the self-statements submitted to the tax authorities, according to a document seen by Bloomberg News.
Those who fail to pay up will face more pressure in March, when a new rule kicks in that allows authorities to expose those with overdue taxes on public channels, including the media.
Self-reporting, a softer alternative to a more formal inspection, has typically been used on corporates rather than individuals with compliance issues, according to sources familiar with the matter. It also comes in the form of an administrative order and serves as a warning to comply and rectify. In comparison, the US encourages its taxpayers to make voluntary disclosure of any non-compliance to cut the risks of criminal charges.
The State Taxation Administration did not respond to a Bloomberg News request for comment.
Jeff, a freelance investor in Hangzhou, a metropolis of 13 million people, said he was prepared when he got a message from the taxman last year. Earlier, friends of his in Shanghai had been contacted.
The 40-year-old also calculated what he owed and paid about 20,000 yuan for US stock dividends and interest on offshore deposits. While the authorities are struggling to ascertain the scope of overseas holdings, he’s under no illusion that their methods will become more precise.
“If what they had in the toolbox last year was still just a blunt knife, this year it’s already become a sharpened blade,” said Jeff, who asked to have his last name withheld, discussing a private matter.
The tax hunt has achieved some initial success. China’s personal income tax revenue jumped 11.5 per cent from 2024 to a record 1.5 trillion yuan in the first 11 months of last year, official data showed.
But broad government revenue fell 0.2 per cent in the first 11 months as plunging income from land sales continued to weigh on the country’s coffers. The stress, coupled with the need to curb local government debt, has prompted a retreat in fiscal support for the economy more recently, with broad official spending contracting for a second straight month in November.
The broad budget deficit was nearly 10 trillion yuan for the first 11 months of 2025, about 18 per cent higher than the same period a year earlier.
While regulations hold that citizens be taxed on income worldwide, including investment gains, they had been rarely enforced until 2024 when the ultra-rich were targeted. The campaign widened last year to cover the less wealthy.
Now the question remains whether China will also look back as far as 2018, the year it joined the Common Reporting Standard (CRS), a global information-sharing system aimed at preventing tax evasion.
“It requires a lot of resources to track down and remind each and every taxable individual, so that’s been a mission impossible in the past,” said Jane Cheung, a partner in Shanghai at PricewaterhouseCoopers Consultants (Shenzhen). “But now empowered by technologies such as AI, it’s much easier for tax authorities to obtain the relevant information and send out alerts to people. So it will be a lasting trend.”
Cheung said monthly inquiries from high-net-worth individuals handled at her division quadrupled in the past few months, compared with previous years. Personally, she’s getting new clients on a daily basis, and has increased her working hours to deal with the influx of inquiries.
Alan Jia, founder of Jupiter Family Office in Hong Kong, also said that he has seen increasing inquiries over the past few months. “Many clients are quite puzzled and nervous, as they have no idea how much they should pay and how they can fix it,” he said.
Wash sales
One of the tactics commonly shared by tax consultants and among cross-border traders exchanging tips is a wash sale, in which an investor dumps some loss-making stocks in their portfolio before year-end to minimise or even offset their net gains realised for a tax year.
If timed right, the trade would effectively cut their tax liability in a given year. The investor can buy the shares back to continue betting on their long-term prospects. The US disallows such practice for tax liability reduction purposes, but China has no such restriction.
For high-net-worth people and those hopeful of getting foreign residency, the more viable option would be to fully utilise their overseas status, preferably from low-tax jurisdictions such as Singapore or Hong Kong, according to PwC and Jupiter.
A foreigner who resides in China for more than 183 days in a year, but has not reached six consecutive years of such residency, is exempt from the local tax on their overseas income, according to regulations. The six-year residency period is also reset to zero if they leave for more than 30 consecutive days in a year.
The rule, if fully used, technically means foreigners with income originated from outside China can be exempt from the local personal income tax indefinitely.
Saving trouble
Celia Wong, a Hong Kong permanent resident who works in Hangzhou, is going to put that to the test. She’s looking at updating her offshore stock account details, registered years ago under her mainland China identity, with Hong Kong tax residency details. While she has yet to get a call from the taxman and has not traded recently, she’s taking no chances.
“The enforcement is only going to get stricter and stricter, so I might as well act now to save me the trouble and the tax payments in future,” she said.
Still, attaining overseas residency is too costly for many.
The easiest way, which Tom did, is to shift any Hong Kong holdings to the official Stock Connect programme. This allows qualified mainland investors to buy stocks in a closed-loop system in Hong Kong. The programme also exempts capital gains tax until the end of 2027.
For his US stocks, Tom has mulled switching to a US brokerage, given that the country’s absence from the CRS framework will mean his account information won’t be shared with China.
He is in no rush to switch though, noting that his US stocks don’t pay much in dividends anyway.
Others are going with the passive approach of “no trading, no tax” for now.
Richard Wang, a retail sector worker in Shanghai, said he thought about shifting to a US brokerage, but gave up after weighing the pros and cons. As long as he does not sell, there will be no gains.
“It’s pointless,” he said, adding he’d be subject to US tax anyway after the switch. “You can’t escape from some kind of tax eventually, so it doesn’t make much difference.” BLOOMBERG
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