Analysis of the Impact of Extended Back Tax Period for Overseas Income on Global Asset Allocation Strategies of Chinese High-Net-Worth Individuals

Since 2025, China’s tax authorities have reached a historical peak in the administration of overseas income. According to data disclosed by the State Taxation Administration, in the first 11 months of 2025, 1,818 “high-income, high-net-worth” (“dual-high”) individuals have been investigated, with 1.523 billion yuan in overdue taxes recovered [1]. The tax authorities define “dual-high” individuals as those with annual income exceeding 1 million yuan or investable assets exceeding 10 million yuan [1].

Since July 2025, tax authorities in Guangdong, Zhejiang and other regions have taken the lead in requiring some enterprise executives and individuals with overseas assets to supplement their declarations of overseas income from the past five years and pay the overdue individual income tax. In November 2025, similar back tax notices were issued successively in Beijing, Fujian, Guangdong, Xiamen, Shenzhen and Sichuan [1]. A number of investors told the media that the back taxes mainly involve overseas income from 2022 and 2023.

The back tax period for this tax audit can be traced back to as early as 2017, with the main scope of focus on 2022 and 2023 [1]. The underlying background of this policy change includes:

: Under the framework of CRS (Common Reporting Standard), China’s tax authorities have established regular automatic exchange relationships of financial account information with more than 100 countries and regions, including the United Kingdom, Singapore, and Switzerland. As of March 2025, 126 countries and regions around the world have signed and implemented CRS. In 2024 alone, more than 250 million pieces of financial account information were exchanged globally through this mechanism, with over USD 80 billion in overdue taxes recovered [2].

: The 2018 revised Individual Income Tax Law of the People’s Republic of China for the first time granted tax authorities the power to implement anti-avoidance adjustments on individuals at the legal level, providing a clear legal basis for the administration of overseas income [3].

---

Data from Hurun Research Institute shows that the number of Chinese high-net-worth households experienced its third decline in 16 years in 2025 [1]. This phenomenon reflects profound changes in the wealth management behaviors of high-net-worth individuals:

Asset Category	Allocation Change Trend	Driving Factors
Insurance	47% planning to increase allocation (highest) [4]	Enhanced risk aversion awareness, wealth inheritance needs
Gold	42% planning to increase allocation [4]	Prominent hedging attributes, resistance to uncertainty
Stocks	34% planning to increase allocation [4]	Seeking value-added opportunities but becoming more cautious
Real Estate	Continuous outflow	Declining liquidity, price pressure
Overseas Assets	20% average proportion, 56% planning to increase allocation [1][4]	Global allocation needs, geopolitical risk hedging

Notably, 45% of high-net-worth individuals already hold overseas financial assets, accounting for an average of 20% of their investment portfolios, and 56% of them plan to increase this proportion within the next year [1].

The investment objectives of current high-net-worth individuals have shifted from “growth priority” to “dual-driven by defense and resilience”. The core demands are ranked as follows:

1. Asset Preservation and Appreciation
   (71%) — The core demand
2. Fund Reserves for Major Events
   (63%)
3. Obtain Stable Cash Flow
   (63%) [4]

In terms of risk preferences, steady-type investors account for the highest proportion (30%), followed by aggressive-type (25%) and balanced-type (23%). Business owners tend to adopt steady and balanced allocations, while professional investors have more aggressive risk preferences [4].

---

According to China’s Individual Income Tax Law, the following five categories of overseas-sourced income are required to be declared in accordance with the law [2]:

Income Type	Tax Calculation Rules	Applicable Tax Rate
Comprehensive Income	Included in annual comprehensive income	3%-45% progressive tax rate
Business Income	Included in annual business income	5%-35% progressive tax rate
Interest, Dividends, and Bonuses	Taxable income is the full amount of income	20%
Property Transfer Income	Income minus original value and reasonable expenses	20%
Accidental Income	Tax calculated based on full amount of income	20%

: “Cryptocurrency asset transactions are a tax blind spot”

• In fact, the OECD launched the Crypto-Asset Reporting Framework (CARF) in October 2022, which incorporates cryptocurrency transactions into the global automatic tax information exchange network. China’s tax authorities are rapidly upgrading their supervision of crypto assets [2].

: “No need to declare if tax has been paid overseas”

• Even if tax has been paid overseas, there is still an obligation to declare to China’s tax authorities. The correct approach is to apply for tax credit in accordance with the law using overseas tax payment certificates [2].

: “Cannot be detected if CRS does not exchange single transaction records”

• Although CRS does not exchange single transaction records, it is sufficient to provide core information such as account balances and annual income summaries as the basis for judgment [2].

The core framework for tax compliance of high-net-worth individuals should include [2][3]:

1. Risk Graded Management
   : Classify tax-related risks, organize professional teams to calculate and proactively pay overdue taxes for high-risk items (such as concealed income, false income declarations), and strive for mitigated penalties.

2. Tax Resident Identity Planning
   : Comprehensively consider factors such as permanent domicile, center of vital interests, habitual residence, and nationality, and clarify the most closely associated tax jurisdiction through professional planning to avoid double taxation.

3. Focus on Controlled Foreign Corporation (CFC) Rules
   : The situation where Chinese individuals hold overseas assets through offshore companies is vulnerable to being “pierced”. If an overseas company does not distribute profits without reasonable business needs, tax authorities have the right to make tax adjustments [3].

---

Against the backdrop of increasingly stringent tax supervision, high-net-worth individuals should adopt the following strategic adjustments:

:

• Complete self-inspection and filing of overseas financial accounts, and sort out all overseas account information
• Verify the declaration status of overseas income since 2017
• Pay overdue taxes and corresponding late fees (charged daily)

:

• Optimize asset holding structures within the legal framework
• Rationally utilize tax treaties and tax credit policies
• Consider allocating part of assets to tax-friendly regions

:

• Establish a compliant family trust structure for wealth inheritance
• Allocate financial products with tax-preferential attributes (such as eligible commercial health insurance)
• Pay attention to the ESG investment trend. It is estimated that the scale of ESG-themed products will exceed 5 trillion yuan by 2030 [4]

In terms of geographical distribution of overseas investments, high-net-worth individuals have shown obvious preference changes [4]:

Destination	Allocation Proportion	Trend Analysis
Hong Kong, China	52%	Traditional first choice, geographical and cultural advantages
Singapore	40%	Advantages in privacy protection and financial services
United States	35%	Market depth, technology investment opportunities
Other Regions	Gradually Diversified	Demand for diversified allocation

With the improvement of infrastructure such as the Cross-boundary Wealth Management Connect, Bond Connect, and ETF Connect, it is estimated that the number of participants in the Cross-boundary Wealth Management Connect will exceed 1 million, and the cross-border remittance amount will exceed 1 trillion yuan by 2030 [4].

---

Failure to declare or false declaration of overseas income will face progressive penalties [2]:

• Administrative Penalties
  : Pay overdue taxes and late fees (charged daily from the day after the tax declaration deadline to the day of payment)
• Credit Penalties
  : Included in the list of tax illegal and dishonest entities
• Criminal Liability
  : If the amount of tax evaded is relatively large and accounts for more than 10% of the payable tax, it may constitute a crime

In the current regulatory environment, “the cost of proactive adaptation and advance planning is far lower than the comprehensive cost of back taxes, high late fees, fines, and even criminal risks brought by post-audit investigations” [2]. Compliance itself has become the most solid barrier for cross-border wealth.

The core of tax compliance should shift from “how to conceal” to “how to declare in a compliant and optimized manner”. All arrangements should be based on real business substance and sufficient legal basis.

---

The extension of the back tax period for overseas income marks that China’s cross-border tax administration has entered a new stage of “precision, normalization, and standardization” [2]. Under the dual action of the Golden Tax IV system and the CRS “sky net”, information asymmetry no longer exists. For high-net-worth individuals, 2025 will become a “watershed” for global asset allocation:

1. Compliance Transformation is Imperative
   : Shift from “concealing overseas income” to “transparent declaration”
2. Defensive Asset Allocation
   : The proportion of defensive assets such as insurance and gold will continue to increase
3. Sustained Globalization Demand
   : Despite increasingly stringent supervision, 56% of high-net-worth individuals still plan to increase their allocation of overseas assets
4. Advance Inheritance Planning
   : In the next 30 years, 98 trillion yuan of wealth will face intergenerational inheritance needs, and tools such as family trusts will become mainstream choices [4]

Facing the irreversible trend of transparent tax administration, proactively embracing the rules and building a defensive compliance system is a rational choice to safeguard wealth security and inheritance.

---

[1] The Epoch Times - “CCP Strengthens Tax Audits on the Rich; Number of High-Net-Worth Households Declines Consecutively” (https://www.epochtimes.com/gb/26/1/7/n14671210.htm)

[2] AllBright Law Offices (Shanghai) - “Cryptocurrency Regulatory Blind Spot? — A Must-Read Compliance Guide for Investors on Overseas Income” (https://www.allbrightlaw.com/CN/10475/3394a21928beff71.aspx)

[3] Lexology - “May It Be Firm as a Rock — Tax Focus on Controlled Foreign Corporations” (https://www.lexology.com/library/detail.aspx?g=8c5d503c-7bd2-487a-ae8d-d1a67f0fa651)

[4] Sina Finance - “Development Status and Future Trend Outlook of China’s Wealth Management Industry in 2025” (https://finance.sina.com.cn/roll/2026-01-09/doc-inhfrztz6146264.shtml)

[5] Ingstart - “Do You Need to Pay Tax on Overseas Stock Trading or Dividends? A Comprehensive Guide to Global Income Compliance Declaration for Chinese Tax Residents” (https://www.ingstart.com/blog/39500.html)