Ms. Zheng, who has obtained Hong Kong residency, has recently been troubled by a question: I own a home and a company on the mainland, and I’ve also obtained Hong Kong residency—so which jurisdiction’s tax resident am I considered to be? After the CRS upgrade in 2026, it will no longer be possible to “choose just one side to file taxes with.”

On March 27, 2026, Hong Kong announced the “Inland Revenue (Amendment) (Automatic Exchange of Information) Bill 2026,” which underwent its first reading in the Legislative Council on April 1 and is expected to take effect on January 1, 2027. This article provides a comprehensive explanation of how tax residents are determined under CRS 2.0; it is recommended reading for those with cross-border tax status.

01

What Exactly Is CRS?

The CRS (Common Reporting Standard) is a global standard for the automatic exchange of tax information issued by the OECD in 2014. Simply put, information on financial accounts held overseas by Chinese tax residents will be automatically exchanged by local tax authorities and shared with Chinese tax authorities. China initiated the first exchange in September 2018.

In 2023, the OECD released CRS 2.0 (including the CARF framework for digital assets); the revised CRS took effect on January 1, 2026, and the first exchange of information will take place in 2027. Hong Kong plans to implement CARF and the revised CRS in phases from 2027 to 2029.

In a nutshell: CRS isn’t new, but the 2.0 version set to take effect in 2026 expands the scope from simply “whether information can be found” to “identifying who controls and who benefits.”

02

2.0: Three Key Upgrades

First, the inclusion of crypto assets: Bitcoin, stablecoins, NFTs, CBDCs, and others have been defined as financial assets for the first time, and exchanges, custodians, and investment entities are all required to report them. The methods previously used to conceal assets through crypto have largely become ineffective.

Second, the “choose one of two” approach for dual tax residency is no longer valid: Under the first-generation CRS, dual tax residency was reported to only a single jurisdiction in accordance with the “pro rata” rule set forth in tax treaties; Version 2.0 requires the truthful reporting of all tax residency jurisdictions, and financial institutions must simultaneously report to all relevant jurisdictions, thereby eliminating the possibility of “tax avoidance through changing tax residency status.”

Third, look-through review: New information—such as account opening dates, the roles of actual controllers, and on-chain addresses/transaction hashes—must be traced back to the ultimate beneficial owner. Offshore shell companies and trusts with no substantive operations will be key targets for audits.

If you’re facing a similar situation—you hold Hong Kong or overseas residency, aren’t sure which jurisdiction you’re a tax resident of, and are worried about running into trouble with dual tax residency—we can provide you with a one-on-one assessment of your status and tax filing requirements. Scan the QR code to contact Qicaiying’s online customer service (WeChat/Phone: 18620388671), and we’ll help you sort out this entire process from start to finish.

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03

How Is Tax Residency Determined?

Tax residency ≠ nationality, nor does it ≠ holding a permanent residency permit from any particular country. Under Chinese tax law, tax residency is determined based on “domicile” or “residence for at least 183 days”; in Hong Kong, it is determined based on “habitual residence” or “temporary visits to Hong Kong that exceed 180 days in a tax year or 300 days over two consecutive years.”

Key point: The rules of both jurisdictions may simultaneously classify you as a resident of each, which is known as “dual tax residency.” Under Version 2.0, you cannot simply choose to report to one jurisdiction—you must truthfully declare all jurisdictions to financial institutions, and each country will ultimately determine your sole residency status based on the agreement’s tie-breaker rules, but information must be submitted to both jurisdictions.

Reminder: Obtaining Hong Kong residency does not automatically result in the loss of Mainland tax residency. Whether you remain a Mainland tax resident depends on your place of residence and the number of days spent there, not on whether you hold a permanent resident card. Blindly assuming that “changing your status means you no longer have to file a tax return” is a highly risky misconception.

04

Signals from the First Criminal Case

In the first half of 2026, a Hong Kong court handed down its first criminal judgment related to the CRS: A mainland resident, who held a Hong Kong bank account through an offshore company in the Seychelles, intentionally concealed his status as a Chinese tax resident and falsely declared himself to be a “non-Chinese tax resident.” He was identified by the Hong Kong Inland Revenue Department through cross-checking data from the mainland obtained via the CRS global exchange.

Outcome: Six months of immediate imprisonment and a fine of 500,000 Hong Kong dollars; based on exchanged information, mainland tax authorities audited his overseas income for the past five years, resulting in the collection of back taxes and fines totaling several million yuan, as well as restrictions on his credit record and ability to leave the country. This marks a shift in CRS regulation from administrative fines to criminal prosecution.

The message is clear: Starting in 2026, financial account information exchanged through the CRS will be mandatorily cross-checked against individual income tax filing data, and any discrepancies will automatically trigger an alert. The cost of concealing one’s identity has escalated from “back taxes and fines” to “a criminal record.”

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05

How to Avoid Pitfalls

First, accurately report your tax residency status: Report to financial institutions in all jurisdictions where you are a tax resident—don’t take a chance by “reporting to only one.” Second, keep sufficient evidence of your residence: Your residence, family, and center of work determine your tax residency status, so plan ahead.

Third, offshore structures must have substance: shell companies, nominee arrangements, and non-operational trusts are key areas subject to scrutiny; only genuine business operations and management can stand up to scrutiny. Fourth, foreign income must be reported in accordance with the law: this includes Hong Kong and U.S. stocks, offshore dividends, and crypto assets.

In a nutshell: Under CRS 2.0, “transparency” is an irreversible trend. Declaring your status in compliance, maintaining sufficient substance, and paying taxes in accordance with the law are more reliable than any structural concealment. It’s fine to use your status for planning purposes, but don’t use it as a shield for tax evasion.

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