Recently, the earnings of senior executives from major domestic companies in their personal overseas stock accounts have attracted the attention of the tax authorities. This situation has also raised questions among long-term overseas investors: "Do the earnings from my overseas stock holdings need to be taxed?" Today, we will delve deeper into issues related to overseas income tax.

Can Tax Authorities Access Overseas Stock Trading Information?

One of the most pressing questions might be, "If I trade stocks in overseas secondary markets, can the tax authorities find out?" The United States has entered into Intergovernmental Agreements (IGAs) with multiple countries to implement the compliance requirements of the Foreign Account Tax Compliance Act (FATCA). The Chinese government reached a substantive agreement (Agreement in Substance) with the United States on FATCA IGA on June 30, 2014. However, as of now, although the FATCA IGA between China and the United States has been substantially reached, it has not been formally signed and put into effect, and the text of the agreement has not been made public. Therefore, U.S. financial institutions currently will not automatically report account information to Chinese tax authorities based on the IGA. Nevertheless, some Chinese-funded overseas securities firms may proactively share data with Chinese regulatory authorities or indirectly disclose information through the Common Reporting Standard (CRS) (for example, when investing in the Hong Kong or Singapore markets). In addition, if the tax authorities discover undeclared overseas income through other channels (such as foreign exchange control records or case-by-case investigations), they may still require the payment of back taxes and even impose penalties.

Are Overseas Stock Trading Gains Taxable?

Some may be confused, "I've never heard of paying tax on stock trading in China, so why do I have to pay it for overseas stock trading?" The clear answer is that overseas stock trading gains are taxable. Specifically, gains from A-shares, B-shares, and Stock Connect (Hong Kong Stock Connect) transactions in China are currently exempt from individual income tax, but overseas investment income is not within this exemption scope. In addition to overseas stock trading gains, profits from selling overseas real estate are also subject to individual income tax at a rate of 20% of the net income. Furthermore, gains from transferring equity in unlisted domestic companies are not exempt and are subject to individual income tax at 20% of the difference.

How to Calculate the Taxable Amount for Overseas Investment Income?

Regarding how much tax needs to be paid on overseas investment income, according to recent inquiries at the Shanghai tax bureau's service hall: the profit portion should be calculated independently based on investments in different countries. The general principle is to use the positive amount after offsetting gains and losses from personal stock transfers as the declared income; if the offset results in a negative amount, then this income is reported as "zero."

Other Issues to Consider for Overseas Investments

When it comes to overseas investment income, foreign exchange compliance issues cannot be overlooked. According to China's foreign exchange administration regulations, domestic residents wishing to engage in overseas investment must submit a written application for a "Registration Form for Overseas Investment by Domestic Individual Residents in Foreign Exchange." Only after approval can procedures for overseas asset realization accounts and fund crediting be handled. Additionally, when verifying net gains and losses from overseas investments by domestic residents, tax authorities may request supplementary supporting documents due to missing data.

The above provides a comprehensive overview of overseas investment income tax. If you would like to know more, please feel free to consult PHC for detailed explanations.

At PHC Advisory, we can offer you full support on matters regarding doing business in China, or any other issues your business may face. If you would like to know more about policies relevant to your business in Italy or Asia, please contact us at info@phcadvisory.com.  

PHC Advisory is a company of  DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance. 

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The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not legally bind PHC Advisory with the reader in any way. 

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