How to pay taxes on money earned from trading Hong Kong and US stocks? Who will be targeted? How to avoid penalties?
Multiple local tax bureaus have simultaneously launched reviews, and many people should receive tax declaration notices soon, with tax amounts ranging from hundreds of thousands to over a million. This is not without reason — the CRS global tax information exchange mechanism has long been in effect, and tax authorities have obtained details of your overseas accounts (bank cards, brokerage, insurance, etc.) through financial institutions. After a long period of data sharing, they are now officially tightening their nets.
Starting from March 2025, tax bureaus in regions including Fujian, Shanghai, Zhejiang, Shandong, and Guangdong have begun a synchronized review of overseas income, with tax amounts in exposed cases ranging from 100,000 to over a million.
❚ Review Process
Reminder → Urge Rectification → Interview Warning → Case Investigation → Public Disclosure
➤ How to pay taxes on money earned from trading Hong Kong and US stocks?
1. Dividend Tax
- US Stock Dividends: The US withholds 10% tax, and you need to pay an additional 10% after returning home (totaling 20%). A tax payment certificate is required to apply for a deduction, but the process is complex.
- Hong Kong Stock Dividends: Hong Kong has already withheld 10%, and according to the tax agreement between the mainland and Hong Kong, no additional payment is required.
2. Capital Gains Tax / Property Transfer Tax
- Tax Rate: 20% (calculated based on individual profits, losses cannot be deducted)
- Calculation Method: Profit = Selling Price - Buying Price - Transaction Costs.
- Key Difference: A-shares are currently exempt from capital gains tax, but Hong Kong and US stocks are subject to it.
Failure to declare for many years may result in accumulated late fees and fines.
- Loss Offset: Investment losses can offset other capital gains in the same year, and complete transaction records must be retained for reference.
The unfortunate individuals from a few days ago were taxed this way, suffering losses while still having to pay taxes. However, tax collection requires verification of all records, and the actual calculation may not align with this. Such obviously unreasonable calculations are the product of someone's misguided thinking.
➤ Who will be targeted?
- Coverage: Includes over 100 countries and regions such as Hong Kong, Singapore, and Europe (excluding the US, which exchanges data separately through FATCA).
- Reporting Content: Identity information, account balances, transaction records, dividends, capital gains, etc.
- Exemption Conditions: Accounts opened in Hong Kong before 2019 with a balance ≤ $250,000 may be temporarily exempt, but must be reported if exceeded.
- Special Note: Financial institutions can decide whether to report small accounts autonomously, so even if the amount is low, it may still be subject to random checks!
➤ How to avoid penalties?
- Long-term Holding: Pay according to dividend distributions.
- Overseas Identity: Avoid dual tax residency by utilizing tax treaties to prevent double taxation.
- US Brokers: Interactive Brokers, First Securities, have different data exchange agreements.
- Late Fees: If you receive information from the tax bureau and have not declared for many years, accumulated late fees and fines may apply.
- Closing Accounts? Probably useless, as to comply with regulations, data is generally retained for several years for review.
- Profits from cryptocurrency have not been mandated for taxation and are in a gray area. First, it must be recognized that cryptocurrency is a legitimate asset, but compliance may retroactively investigate several years of profit data.
