CRS Chinese tax inquiries and offshore reporting explained
Chinese tax residents are increasingly receiving compliance enquiries from the People’s Republic of China State Taxation Administration (STA) about offshore assets, often triggered by data shared under Common Reporting Standard (CRS) frameworks. Whether you hold a foreign bank account; are a relevant party of a foreign trust or are a shareholder or director of a foreign investment entity, you should understand how your financial data is reported and classified in this tax transparent era.
This article outlines how CRS works, the reporting obligations of foreign financial institutions, and the specific issues Chinese tax authorities are focusing on in their enforcement. We also explain how Harneys Fiduciary helps clients with tailored services that support tax compliance and sustainable structure planning.
Understanding CRS
CRS was developed by the Organisation for Economic Co-operation and Development (OECD), and is the global standard that enables countries to automatically exchange information on financial accounts held by foreign tax residents.
China began participating in CRS in 2017. Since then, upon entering into competent authority agreements with other countries, the STA has received detailed information about foreign accounts held by their tax residents. This includes the account balances and assets of foreign trusts or entities deemed controlled by their tax residents.
Additional information such as dividends, interest, and trading income for custodial accounts is also exchanged.
Chinese tax residents are taxed on their worldwide income with rates that can reach up to 20%.
What Chinese authorities want to know
Under CRS compliance, if you are a Chinese tax resident, your financial institution service providers will already be reporting your data to the STA through CRS. The authorities could be using the information to raise two key questions:
Financial institutions subject to CRS must:
How were the offshore assets moved out of China?
The STA wants to understand the original source of the offshore funds. Specifically, they seek confirmation that the offshore funds were tax-paid in China, declared appropriately under Chinese tax law, and lawfully transferred overseas.
Today’s CRS disclosures provide authorities with a full picture of the offshore funds, allowing them to retroactively assess whether it is plausible for their tax residents to amass that tax-paid offshore wealth. The burden of proof lies with the taxpayer to demonstrate that the offshore wealth originated from income that was fully declared and taxed prior to remittance.
Is the offshore income being properly reported and taxed in China?
Chinese tax residents are taxed on their worldwide income. This means that the Chinese tax residents are obliged to include the relevant income, including overseas income, under their names in their annual filings to the STA.
If their worldwide income is under-declared, Chinese authorities may impose retroactive tax assessments and penalties.
CRS classification: why entity type matters
What information is reported under CRS depends on how your entity is classified. Financial institutions rely on account holders to complete a self-certification form, and the classification determines what details are exchanged with tax authorities.
Typical classifications include:
- Financial Institutions (FIs): If your trust is deemed to be a financial institution itself under CRS, details about its account holders, such as settlors, protectors and beneficiaries may be reportable.
- Passive non-financial entities (NFEs): If the entity earns mostly passive income, like dividends or interest, information about its controlling persons will be reported.
- Active NFEs: Operating companies with genuine business activity may be excluded from reporting on individuals, provided they meet certain criteria.
A common risk is incorrect or outdated classification, which can result in inaccurate reporting, breach notices, or enforcement actions. Our team collaborates closely with clients to review classifications and mitigate unnecessary disclosure.
CRS enforcement trends in China
Tax enforcement in China has become more data driven. Since joining CRS, the STA has used the exchanged information to initiate audits and compliance checks across different taxpayer segments. This includes:
- Individuals holding personal bank accounts overseas
- Business owners with companies listed on overseas stock exchanges
- Individuals with offshore life insurance policies or investment accounts
Chinese authorities now have the ability to cross-reference CRS data with personal tax filings, outbound remittance records, and even immigration data. Transparent structuring and full tax compliance are essential.
Jurisdictional insight: Hong Kong and Singapore
Many Chinese residents bank or invest through Asia’s leading financial hubs. Each jurisdiction participates in CRS and exchanges information with China:
- Hong Kong: A top destination for offshore accounts; CRS data flows from banks, brokers, and custodians to the Hong Kong Inland Revenue Department (IRD) which exchanges this information with China annually.
- Singapore: A politically stable and reputable financial hub; CRS data flows from financial institutions to the Inland Revenue Authority of Singapore (IRAS) which exchanges this information with all participating jurisdictions, including China, annually.
Clients should ensure that their structures are compliant across jurisdictions.
How Harneys Fiduciary supports Chinese clients with CRS compliance
With over 20 years of experience advising high-net-worth families in Asia, we understand the importance of balancing confidentiality, regulatory obligations, and long-term planning. We offer:
- Entity classification and CRS form support
- FATCA and CRS registration and reporting services
- Ongoing monitoring of reporting obligations and deadlines
- Trustee and fiduciary services to maintain compliant structures
- Liaison with legal and tax advisers to ensure alignment with Chinese regulations
Whether you are a shareholder of a company, settlor, protector or beneficiary of a trust, our goal is to help you remain compliant while achieving your wealth and succession planning goals.
Regulatory risks: penalties for non-compliance
Failing to comply with CRS obligations or to report offshore income in China can result in:
- Financial penalties from the STA
- Retroactive tax assessments
- Scrutiny of related parties (e.g. family members, companies)
- Reputational damage
Even honest oversights can lead to enforcement action. Proactive classification reviews, accurate CRS form submissions, and tax filing coordination are essential.
Key takeaways
- CRS are global reporting standards that now include China as a participating jurisdiction
- Hong Kong and Singapore all report data on Chinese tax resident account holders to local tax authorities
- Understanding entity classification is key. Passive NFEs may be seen through and expose details of its Controlling Persons.
- CRS forms must be completed correctly to avoid inaccurate reporting
- Harneys Fiduciary helps Chinese clients maintain compliance while achieving long-term wealth planning goals
Ready to review your CRS classification?
Whether you have received a letter from Chinese tax authorities or simply want to verify your compliance, Harneys Fiduciary can help.
We recommend:
- Reviewing your offshore structures and entity classifications
- Confirming that CRS forms are correctly completed and submitted
- Engaging our fiduciary and regulatory reporting team to identify and close compliance gaps
Get in touch to discuss your FATCA and CRS obligations and receive tailored support from our expert team.
Contact us to discuss your CRS classification.
FAQs: CRS explained
What is the difference between an active and a passive non-financial entity and why does it matter for CRS reporting?
Under CRS an NFE is active if it carries on substantial commercial activity, such as trading, manufacturing, or holding less than 50 per cent of passive income or assets. A passive non-financial entity derives most of its income from financial assets, such as dividends and interests.
- Passive NFEs trigger reporting of their controlling persons such as shareholders and trust relevant parties to tax authorities.
- Active NFEs generally do not trigger individual-level disclosure.
Accurate classification is essential as mis-labelling an active business as passive can lead to disclosure and penalties during CRS reporting.
How do I complete the CRS self-declaration, sometimes called an AEOI form?
Financial Institutions in countries participating in CRS require clients to file a self-certification, CRS form, confirming:
- Tax residency
- Entity type
- Controlling persons where relevant.
For cross-border clients complete every section accurately, list all tax residencies, and attach supporting documents including passports and tax-ID letters. If you are unsure how to fill a CRS declaration form, seek professional advice, banks routinely reject incomplete or inconsistent forms delaying onboarding.
What is a Singapore based financial institution’s core obligations under local anti-money-laundering rules and the CRS?
A regulated financial institution in Singapore must:
- Conduct customer due diligence in line with Singapore’s AML law and the Monetary Authority of Singapore (MAS) guidelines.
- File suspicious transaction reports, recent money laundering Singapore cases highlight active enforcement.
- Register on the Inland Revenue Authority of Singapore (IRAS) portal and submit annual CRS reports or nil returns for all reportable accounts.
Failure to comply can result in multi-million-dollar fines, licence revocation, and severe reputational damage.
How does the Common Reporting Standard operate in Hong Kong and what does it mean for Chinese tax residents?
Hong Kong has participated in CRS since 2018. Financial institutions in Hong Kong, including banks, brokers, asset managers, and custodians, must identify account holders who are tax residents of other jurisdictions, including China. They collect information such as:
- Name, address, tax identification number (TIN)
- Date of birth (for individuals)
- Account balances,
- For custodial account: interest, dividends, and other income paid or credited to the account
This information is reported annually to the Hong Kong IRD, which then exchanges it with the STA in China under the CRS framework.
For Chinese tax residents with Hong Kong accounts, this means offshore banking details are no longer private from the STA, and undeclared income can lead to enquiries, penalties, and back taxes. It is critical to ensure that any Hong Kong-based structures or accounts are fully compliant with Chinese tax reporting rules.
