Mr. Chen, who trades U.S. and Hong Kong stocks, received a notification during his individual income tax settlement in March 2026 stating that he needed to report income from overseas investments. He checked his accounts and found that dividends from his U.S. stock holdings had been subject to withholding tax (10%), while his Hong Kong stock trades had resulted in both gains and losses—yet he had never filed a tax return in mainland China, leaving him feeling quite uneasy.

In 2026, tax authorities will continue to strengthen the administration of taxes on overseas income earned by resident individuals through the CRS. This article clearly explains the reporting obligations, calculation methods, and tax credit rules for holdings of Hong Kong and U.S. stocks; investors with overseas accounts are advised to read it.

In a nutshell: By 2026, overseas income won’t be “untraceable”—it will be “automatically reported.” Filing early is much safer than facing penalties after being audited.

01

What Needs to Be Reported

The criteria in a nutshell: Chinese tax residents (those who have a domicile in China or have resided in China for at least 183 days in a tax year) must report their worldwide income for individual income tax purposes in mainland China. The vast majority of mainland Chinese who have opened accounts to trade U.S. stocks in Hong Kong are considered residents.

Items subject to reporting include: dividends from Hong Kong and U.S. stocks, capital gains from stock sales (disposals), overseas wages and salaries, compensation for services, and rental income. Even if held through a BVI, Cayman Islands, or offshore trust, taxation is still applied on a look-through basis; the use of a shell structure does not alter the reporting obligations.

The fact that funds have not been repatriated and remain overseas for an extended period does not affect your reporting obligations. Don’t assume that just because “the money is overseas and hasn’t come back,” you don’t have to report it—the CRS automatically exchanges account information with the mainland, so hidden income has already been identified.

02

How do you calculate taxes?

Dividends: 20%. Sales and transfers of shares: 20%. Gains from overseas listings are not eligible for the A-share tax exemption and must be taxed.

Gains and losses from stock investments are offset against each other within the tax year: gains and losses from trading during the current year are combined for calculation, and gains and losses from multiple stocks may be offset against each other within the same year; however, losses from the previous year cannot be used to offset gains in the current year.

Realization Principle: A tax liability arises only when assets are actually sold and proceeds are realized; unrealized gains on the books are not subject to tax. Therefore, do not panic-sell during a loss-making year, and do not underreport your gains during a profitable year.

If you’re facing a similar situation—trading Hong Kong and U.S. stocks, unsure which gains to report, and worried about having to pay back taxes after the CRS information exchange—we can help you determine the scope of your reporting obligations and how to calculate your taxes. Scan the QR code to contact Qicaiying’s online customer service (WeChat/Phone: 18620388671), and we’ll help you sort out this process from start to finish.

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03

Can taxes paid overseas be credited?

Yes. Individual income tax paid overseas can be credited against the tax liability in mainland China upon presentation of valid tax payment documentation. Any excess will not be refunded, any shortfall must be paid, and there will be no double taxation.

Example: Dividends from Hong Kong stocks are subject to a 10% withholding tax in Hong Kong, while the tax rate in mainland China is 20% → The difference of 10% must be paid upon returning to China. For U.S. stocks, if a position is reduced and 25% has already been paid in the U.S. → No additional payment is required for that year, and the excess of 5% can be carried forward for up to 5 years to offset other foreign income.

Keep all supporting documents: transaction records, tax payment certificates (Form 1042-S), and dividend notices must be retained for at least 10 years. Tax credits will not be granted without compliant supporting documents.

04

New Regulatory Signals for 2026

February 24, 2026, *Legal Person* Magazine: Starting in 2025, tax authorities have been conducting ongoing outreach and guidance, reminding taxpayers to self-audit their overseas income from 2022 to 2024. By leveraging the Common Reporting Standard (CRS), they have signaled a tightening of enforcement while also providing a “window for voluntary correction.”

On July 7, 2026, the Shanghai Bar Association issued the “Operational Guidelines for Individual Income Tax Filing on Overseas Income (2026) (Trial),” standardizing the filing of overseas income for resident individuals; under CRS 2.0, crypto assets will be included in the exchange of information starting in 2028.

Late payment penalties are calculated at 0.05% per day; tax evasion results in indefinite back collection, a fine of 5 times to no more than 5 times the amount of tax evaded, and criminal liability. Voluntary correction can prevent subsequent back collection.

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05

How to Ensure Compliance

First, verify your identity: Based on your residence and the 183-day rule—don’t assume that “changing your identity means you don’t have to report.” Second, review your accounts: Cross-check bank statements, brokerage statements, and tax payment receipts.

Third, annual filing: File your return between March and June of the following year using the “Overseas Income” module on the individual income tax app or website, and apply for a tax credit for taxes already paid overseas. Fourth, document retention: Keep transaction records and tax payment certificates for 10 years.

In a nutshell: The bottom line for Hong Kong and U.S. stocks in 2026 is “transparent accounts and proper reporting.” Tax exemptions are time-limited, and reporting is an obligation; keeping your books in order is far safer than gambling on the hope that auditors won’t look into your accounts.

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