Individuals with dual high status and overseas income may become key focuses for individual income tax audits
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Individuals with dual high status and overseas income may become key focuses for individual income tax audits
This article interprets such tax-related risks to help you complete tax filings and fulfill your tax obligations in accordance with the law.
Navigating Web3 tides with focused insightsAuthor: TaxDAO
【Chinese Tax Authority】Dear taxpayer, hello! To further assist you in fulfilling your tax obligations in accordance with the law and avoid potential tax risks, please review your total income and tax filing status for the year 2023 based on your individual circumstances. Please verify whether the reported income types, amounts, deductible expenses, tax exemptions, and other information are true, accurate, and complete. To help you promptly resolve any risks, the individual income tax special task force of the XX Municipal Tax Bureau will contact you shortly. Please be sure to answer the calls. Contact number: XXX. 【State Taxation Administration, XX Municipal Tax Bureau】
Recently, some individuals investing in cryptocurrency assets have gradually started receiving tax risk alert messages from tax authorities. In this article, the TaxDAO research team provides an analysis of such tax risks to help you lawfully complete tax filings and fulfill your tax obligations.
1. Background of the Verification
According to Article 11 of the "Measures for the Classification and Management of Taxpayers" issued by China's State Taxation Administration, individuals can be categorized into high-income, high-net-worth individuals (referred to as "dual-high individuals") and ordinary individuals based on their income and assets. With economic development, the number of dual-high individuals in China continues to grow, and overseas income is playing an increasingly significant role in personal earnings. At the same time, tax authorities across China are placing greater emphasis on tax administration for dual-high individuals and those with overseas-sourced income, resulting in various regional enforcement cases. Recently, tax bureaus in major cities nationwide have established special task forces dedicated to individual income tax to examine the tax filings of dual-high individuals and those with overseas income. The message shown at the beginning of this article reflects this ongoing trend.
2. Interpretation of Verification Characteristics
This round of tax verification has two notable characteristics. The first is a clearly defined target group—specifically focusing on dual-high individuals and individuals with overseas income. These groups typically have higher incomes, diverse income sources, varied personal asset portfolios, and complex tax-related matters, increasing the likelihood of omissions in tax reporting. More importantly, these individuals often engage in tax planning, but certain strategies inherently carry compliance risks. For example, transferring equity at undervalued prices through related-party transactions or using "yin-yang" contracts to transfer shares; senior executives ("directors, supervisors, and senior management") may convert income forms to avoid higher individual income tax rates; others may use offshore companies or accounts to defer taxation or leverage foreign residency status to reduce tax liabilities—all of which entail corresponding risks.
The second characteristic is the intensified enforcement effort, demonstrated by the establishment of individual income tax special task forces to conduct verifications. A "special task force" refers to a temporary working group formed by drawing personnel from different departments or organizations to accomplish a specific mission. The primary function of such task forces is to concentrate resources to address urgent or temporary assignments. Although these individual income tax task forces are not permanent or formal institutions, their formation across regions signals the State Taxation Administration’s strong commitment to this initiative—enabling focused, efficient, and flexible execution of tax reviews targeting dual-high individuals and those with overseas income.
3. How Individuals Can Mitigate Tax Compliance Risks
The establishment of individual income tax task forces and the implementation of related verification activities impose higher compliance requirements on dual-high individuals and those with overseas income. In particular, the tax compliance surrounding overseas income may become a key focus of scrutiny. The TaxDAO team recommends that dual-high individuals and those with overseas income take the following steps to mitigate tax compliance risks:
First, tax planning must align with underlying economic substance. Tax strategies should not exceed the reasonable boundaries permitted by tax laws or involve illegal acts aimed at evading or concealing tax liabilities.
Second, conduct regular self-audits for tax compliance. Due to the complexity of income sources, dual-high individuals and those with overseas income may fail to promptly identify gaps or risks in their tax compliance. Therefore, it is essential to designate internal personnel or hire professional tax advisors to perform regular checks, enabling early detection and correction of potential tax issues.
Third, seek assistance from tax and legal professionals when responding to tax audits or potential administrative and criminal penalties. Tax audits and associated legal proceedings require specialized knowledge, and lacking expert support could result in significant losses. Procedurally, individuals should protect their legal rights through remedies such as administrative reconsideration and litigation under the Tax Collection and Administration Law, Administrative Procedure Law, and Criminal Procedure Law. Substantively, they should focus on core disputes in tax controversies, presenting arguments for exemption or mitigation of penalties to minimize losses arising from compliance issues.
Fourth, individuals with overseas income should pay special attention to the "Announcement on Individual Income Tax Policies Regarding Overseas-Sourced Income" (Ministry of Finance and State Taxation Administration Announcement No. 3 of 2020) (hereinafter referred to as "Announcement No. 3"). Under the framework of Announcement No. 3, individuals who have emigrated overseas but have not yet canceled their Chinese household registration (hukou), as well as those without Chinese household registration but who live and work long-term within China, must carefully manage tax reporting for both domestic and overseas income.
In general, like all other Chinese citizens, dual-high individuals and those with overseas income must strictly comply with relevant Chinese laws and regulations and fulfill their tax obligations accordingly.
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