Zhang, a live-streamer from Hangzhou, earned 8 million yuan last year selling products on a certain platform. After hearing from a friend that ”if you register as a sole proprietor, your labor income will be reclassified as business income, and your tax rate will drop directly from 45% to 5%,” Zhang was intrigued and immediately registered a studio.

Then, in May of this year, the tax bureau issued a notice: back taxes and penalties totaling 2.2 million. Host Zhang was stunned—”But isn’t this just legal tax planning?”

Actually, that’s not the case. On July 20, 2026, the People’s Daily published a feature article titled ”Strict Crackdown on Tax Evasion by Internet Celebrities! How Can ”Labor Services” Be Turned into ”Business Operations”?” which directly addressed this tax-evasion tactic that countless live-streamers regard as “standard practice.”

Let's first break down the logic behind this technique.

Under current tax law,Wages and salaries, as well as remuneration for services, are classified as ”comprehensive income.”...an excess progressive tax rate ranging from 3% to 45% applies. A live streamer with an annual income of 5 million, if filing taxes as "remuneration for services," would be taxed at the 45% rate on the portion exceeding 960,000.

但Business IncomeIt’s different. Business income from individually owned businesses and sole proprietorships is subject to excess progressive tax rates ranging from 5% to 35%. Furthermore, in many regions, individually owned businesses are also subject toFixed-Rate Taxation Policy—The tax authority does not investigate your actual costs and profits; instead, it directly determines how much tax you owe based on a fixed percentage of your revenue (typically 1%–3%).

One In, One Out: How Big Is the Tax Burden Gap?

An annual income of 5 million is taxed as service remuneration at the highest rate of 45.1%, resulting in a tax burden of approximately 1.6 million. Under the fixed-rate taxation for self-employed individuals, the tax rate is 11%, so the tax paid is only 50,000. That’s a difference of exactly 32 times.

Thus, a ”standard operating procedure” was established: Live streamers register as self-employed individuals or sole proprietorships → deposit their live-streaming income into the account of that entity → file their taxes as business income and benefit from the assessed tax collection method.

On the surface, the streamer does indeed appear to be the operator of this sole proprietorship and its source of income. But the tax authorities don’t see it that way.

What is the key factor in determining whether a piece of income is ”remuneration for services” or ”business income”? It depends onDoes it exhibit characteristics of independent operation?: Do you have your own facilities, equipment, and team? Are you self-supporting? Do you serve multiple clients rather than a single platform?

A live-streaming host on Douyin who sells products through live streams derives their entire income from platform tips and commissions; they have no independent supply chain and no self-built customer base—this model is, in essence,Personal Services...it doesn't fit the ”independent operation” label.

In the past, when the tax authorities audited you, they relied on the data you reported yourself. Whatever amount you reported was the amount they considered.

In 2026, the rules of the game changed.

The first change:The platform's data is directly connected to the tax authority. According to the “Regulations on the Reporting of Tax-Related Information by Internet Platform Companies,” all major platforms—including Douyin, Kuaishou, Taobao, and Xiaohongshu—are now required to submit quarterly reports detailing the income of live streamers and merchants to tax authorities. Whether it’s tips, commission income, refund records, or ad revenue shares on your platform—the tax authorities know more about them than you do.

On July 10, 2026, tax authorities in Shandong, Zhejiang, Sichuan, and other regions simultaneously exposed seven cases of tax evasion by online stores run by internet celebrities. A common feature of these cases was a significant discrepancy between platform data and tax filing data. In one instance, a seller reported 23 million in platform revenue but declared only 7 million on their tax return; the difference of 16 million was routed through personal bank accounts. When the tax system cross-checked the data, it immediately triggered a red alert.

The second change:The Fixed-Rate Taxation Service Window Is Closed. The document “Guidelines on Tax-Related Issues for Cross-Border E-Commerce Enterprises,” issued by the State Taxation Administration in April 2026, clearly states: For 2025 and earlier years, businesses are permitted to settle outstanding accounts under the assessed-taxation method; however, starting in 2026, the system will fully transition to the audited-taxation method. The assessed-taxation method will thus be phased out, and all business entities must pay taxes based on their actual profits.

The third change—and the most critical one—is:Stricter Penalties for Retroactive Adjustments. Announcement No. 2 on the Implementation of the 2026 Value-Added Tax Law sets forth a key rule: if the tax authorities determine that you do not meet the criteria for a small-scale taxpayer, they may require you toRetroactive Tax Payment Based on the Applicable Tax Rate for General Taxpayers. What does that mean? You originally paid taxes based on the 1% formula, but after an audit, they recalculated it using the 13% formula.

Gu Cheng, Dean of the School of Finance and Taxation at Dongbei University of Finance and Economics, put it bluntly: ”This change has led to a significant increase in the amount of back taxes, late payment penalties, and fines, substantially raising the cost of noncompliance.”

The fourth change:“Labor-for-Profit” Practices Singled Out for Crackdown. On July 20, 2026, the People’s Daily published a feature article with a title that took a firm stance: ”Crackdown on Tax Evasion by Internet Celebrities! How Can ’Labor Services’ Be Turned into ”Business Operations’?”

The article clearly states that registering shell companies and illegally reclassifying live-streaming earnings as business income for tax purposes are currently the most common methods used by internet celebrities to evade taxes. Tax authorities have already established a well-developed verification process—first examining the substance of your business operations, then reviewing your corporate structure. No matter how well-crafted the shell company may be, if the substance doesn’t match, you’ll be caught.

Huang Wenyi, a professor at the School of Law at Renmin University of China, summed it up in a single sentence: ”The notion that ’online transactions can evade regulation by not being recorded in the books” is nothing more than putting one’s fingers in one’s ears to steal a bell.”

“The shift from labor services to business operations” is just the tip of the iceberg. The seven cases publicly disclosed on July 10, 2026, revealed at least four common tax evasion schemes.

Option 1: Driving traffic to private channels + accepting payments via personal card.Some online stores list low prices on the platform to attract customers, then direct them to add them on WeChat, where they complete the transaction via WeChat transfers or personal bank accounts. None of this revenue goes into the official business account, so naturally, it is never reported. A Taobao store owner recently investigated operated exactly this way—the platform’s transaction volume was only 400,000, but the turnover in their private channels reached as high as 6 million, all of which went through personal bank accounts.

The tax authority’s verification process is quite simple: they check your purchase records and logistics data. If your platform sales total 400,000, but the volume of packages you’ve shipped far exceeds that figure, the discrepancy will become apparent as soon as they compare the two.

Option 2: Think that once you cancel it, no one will check? That’s way too naive.In one of the cases that came to light, a business owner evaded taxes and then submitted false documents to complete the business deregistration, believing that by closing the business, the matter would be settled. However, the tax authorities traced the case back to the entity that existed prior to deregistration and still collected the back taxes and fines.

Shi Shaobin, Dean of the School of Economics at Shandong University, made it very clear: Once tax evasion is committed, it constitutes a violation of the state’s tax rights; the imposition of liability for tax-related violations is not necessarily linked to whether the business entity continues to exist.Deregistration has never been a legitimate means of evading taxes.

Option 3: Split your income to maintain small-scale business status.Some live-streamers have long had annual incomes exceeding the 5 million threshold for general taxpayers, but by registering multiple sole proprietorships, they split their income among these entities, with each entity filing taxes at the 1% tax rate applicable to small-scale taxpayers.

A 2026 supporting notice to the Value-Added Tax Law clarifies that tax authorities have the authority to aggregate the revenue of all related entities; once this is verified,Retroactive adjustment based on the 13% tax rate for general taxpayers...The amount of back taxes owed increased more than tenfold.

Type 4: Has never registered for tax purposes.Some individual sellers have never registered for taxes since the day they opened their stores and don’t even know where the tax office is located. A case like this was recently investigated—the tax office directly assessed profits based on the industry average, resulting in tax bills that were often higher than what was actually owed.

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After talking so much about ”what not to do,” what ”should we do”?

Step 1: Go through the tax registration process properly.Whether you are an individual seller or a contracted live-streamer, as long as you operate your business on an ongoing basis and have a stable income, you should register as a business entity (either as a sole proprietorship or a limited liability company) and then complete tax registration with the tax authorities. This is the starting point for compliance—there’s no way around it.

Step 2: Deposit all income into the company account.All platform revenue and revenue from private channels must be deposited into a corporate account or a linked business account; it can no longer be routed through personal bank cards. Every transaction must be traceable.

Step 3: Clearly distinguish the nature of your income.This is the most important point.

If you are providing live-streaming services and accepting tips on the platform as an individual—this constitutesCompensation for Services Rendered...the payer (the platform or MCN agency) should withhold and remit individual income tax on the recipient’s behalf. Current policy allows for a monthly deduction of 5,000 yuan before calculating the cumulative withholding amount; as a result, the actual tax burden isn’t as daunting as some claim.

If you run an online store with your own supply chain, handle your own procurement, and operate on a self-supporting basis—this falls underBusiness Income... Sole proprietorships or companies should be the primary entities, maintain proper accounting records, and file tax returns based on actual profits.

The criteria for determination do not depend on what type of entity you registered,It depends on the nature of your businessThe

Step 4: Take full advantage of legitimate tax incentives.Compliance does not mean paying more taxes than necessary. In 2026, the government has retained several tax incentives for small-scale taxpayers: VAT is exempted on monthly sales of 150,000 or less, and the portion exceeding that amount is subject to a tax rate of 1%. For individual businesses, the portion of taxable income not exceeding 2 million is subject to a 50% reduction in personal income tax.

In addition, the 2026 Value-Added Tax Law and its accompanying announcements specify that compliant invoices obtained from overseas, as well as itemized platform fee statements (such as advertising fees, logistics fees, and platform commissions), can be used as documentation for pre-tax deductions. This means that your customer acquisition costs and operating expenses are deductible in accordance with the law, so you do not need to ”underreport profits” to avoid taxes.

Step 5: If your business has grown, upgrade your business entity.When annual sales consistently exceeded 5 million, the company voluntarily registered as a general taxpayer. Although the tax rate jumped from 1% to 6% or 13%, the company can legally claim input tax credits, and costs such as procurement, equipment investments, and advertising expenses are all tax-deductible. For e-commerce companies with actual operating costs,The actual tax burden for general taxpayers is often lower than that for small-scale taxpayers.The

If you have indeed engaged in non-compliant practices in the past, what should you do now?

The worst choice isKeep it a secret. By 2026, when the platform’s data will be directly linked to the tax authorities, it will be impossible to hide anything. Once the tax authorities come knocking on your door, you won’t be able to avoid fines, late payment penalties, or a credit rating downgrade.

The choice of the second-order difference isDissolve the Company and Flee. As mentioned earlier, deregistration is not a shield against taxes; tax authorities are fully entitled to hold the entity accountable for its actions prior to deregistration.

The correct procedure consists of three steps:

First, file a supplemental return proactively.For any periods in the past for which taxes and fees were not reported, proactively file the required returns under the guidance of a professional firm. There is a fundamental difference between proactively filing and being audited, in terms of both the approach taken and the severity of penalties.

Second, clear out existing issues and establish a compliance system.Sort out the past accounts—make any necessary adjustments and file any required amendments—and then, starting from this point forward, establish a standardized financial and tax reporting system.

Third, don't try to figure it out on your own.Tax compliance is a highly specialized matter, especially during the period of rapid policy changes in 2026. Finding a reliable financial and tax advisor is 10,000 times more reliable than reading a few guides on Xiaohongshu on your own.

An article in the People’s Daily on July 20 included a particularly insightful statement: ”Paying taxes in accordance with the law is not only a legal requirement, but also a fundamental guarantee for a stable and long-term career.”

Those live-streamers who once saved hundreds of thousands in taxes by reclassifying ”labor services” as “business operations” ended up having to pay back taxes and fines that easily totaled over a million. They ended up paying back more than double what they had saved.

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