1. The first pitfall: Concealing income is directly classified as tax evasion.
A personal account received payment for goods from the company, but the funds were not recorded in the company’s books, and no tax return was filed. Under tax law, this is referred to as “concealing income.”
Article 63 of the *Tax Collection and Administration Law* clearly states: Taxpayers who forge, alter, conceal, or unlawfully destroy accounting books and accounting vouchers, or who overstate expenses or underreport or omit income in their accounting books, are guilty of tax evasion. The tax authorities shall recover the tax arrears, impose late payment penalties, and levy a fine ranging from 0.5 to 5 times the amount of tax evaded.
That’s how Jianke Industrial ended up owing 680,000 in back taxes and penalties.
2. The Second Pitfall: Commingling of Assets—Individuals Liable for Company Debts.
Many businesses engaged in cross-border trade are registered as limited liability companies. Under normal circumstances, shareholders are only liable to the extent of their investment; if the company incurs debt, the worst-case scenario is that the company goes bankrupt, and the shareholders’ personal assets remain unaffected.
But if youReceiving company payments into a personal account is legally referred to as “commingling of assets.”. Once a company is subject to debt collection or fined, the court can pierce the corporate veil and directly seek to recover the debt from the shareholders' personal assets.
The money the company owes becomes money you personally owe.
3. The Third Pitfall: Personal foreign exchange accounts cannot be used to receive payments related to business operations.
The limit on personal foreign exchange accounts is intended for current account transactions such as studying abroad, travel, and visiting relatives—not for receiving corporate payments.
Splitting large foreign exchange payments into smaller amounts and receiving foreign currency through multiple personal accounts is known as “fragmented foreign exchange settlement,” which is in itself a violation of foreign exchange regulations. Once a bank detects this, the consequences range from having the account frozen—which is the mildest penalty—to being placed on the State Administration of Foreign Exchange’s blacklist.
The Fourth Threat: Phase IV of the Golden Tax System is targeting the shift from public to private ownership, and its ability to see through such arrangements is greater than you might imagine.
Following the launch of the Golden Tax Phase IV system, data has been integrated between the tax authorities and banks, customs, and the State Administration of Foreign Exchange.The system automatically detects and compares large-amount transfers between business and personal accounts. If your personal account receives 3 million in a year but your company reports only 20,000 in income, the system will immediately flag it in red.
