Foreign income tax refund retroactive to 2017? How can taxpayers resolve the tax crisis

Written by: FinTax

News Overview

On January 15, 2026, multiple media outlets reported that the retrospective period for tax recovery on offshore income for Chinese mainland tax residents has been extended compared to previous years, potentially reaching back to 2020 or even 2017. Since 2025, many tax residents have received reminders and notices from tax authorities urging self-examination of their domestic and overseas income and timely tax filing. The scope of tax recovery mainly covers the past 3 years, focusing on 2022 and 2023.

On January 16, the relevant department of the State Taxation Administration stated that tax authorities will continue to strengthen publicity and guidance on the taxation of residents’ offshore income, reminding taxpayers since last year to conduct self-inspections of income obtained from abroad between 2022 and 2024.

FinTax Brief Commentary

1. Event Interpretation: Offshore Income Tax Recovery Extended to 2017

1.1 Event Details and Background

Recently, a well-known media report on “Retrospective Tax Recovery of Offshore Income” went viral across various financial platforms, sparking heated discussions. The report pointed out that the statute of limitations for tax recovery on offshore income for Chinese mainland tax residents has been extended, potentially back to 2020 or even 2017. The day after the report was published, relevant departments of the State Taxation Administration revealed that since last year, taxpayers have been reminded to self-inspect their offshore income from 2022 to 2024. This indicates that a large number of Chinese tax residents who trade US stocks, invest in offshore funds, or set up offshore trusts and hold overseas income accounts may face “retrospective” tax audits for previous years and be required to pay back taxes and late fees.

This retrospective tax recovery event occurs against the backdrop of China implementing the CRS system and the tax authorities carrying out a series of offshore income tax enforcement actions (see table below). From an objective regulatory perspective, the prerequisite for precise inspection by tax authorities is access to relevant tax information. China first began CRS information exchange in 2018, exchanging account information from 2017. Based on this, Chinese tax authorities can obtain account balances, transaction records, and holder information from overseas banks, securities, trusts, and other institutions under the CRS framework, making retrospective offshore income tax audits back to 2017 possible.

Table 1: Key Events in Offshore Income Tax Regulation Review

1.2 Regulatory Trend Observation

Reviewing the enforcement trends over the past 25 years, it is clear that the issue of undeclared offshore income has become a key focus of regulation. Analyzing this event and related enforcement actions, the following regulatory trends can be summarized:

Extended Retrospective Period: The scope of offshore income tax recovery has further expanded to cover multiple years of tax-related data, potentially back to 2017. Previously undeclared offshore income may now be subject to review.

Batch Identification and Upgraded Methods: Relying on CRS information exchange and big data analysis, tax authorities now have the capability to identify and precisely locate offshore income in batches. Coupled with the “Five-Step Work Method,” the regulatory model is shifting from “dependence on voluntary declaration” to “substantive verification and accountability.”

Expanded Enforcement Scope and Increased Intensity: Taxpayers in various regions are receiving SMS and phone reminders from tax authorities. The scope of regulation is no longer limited to high-risk groups but now covers a broad range of individuals with different income levels and types of offshore gains.

2. Why Is Retrospective Taxation Possible? Legal, Information, and Technological Factors

As long as legal conditions are met, tax authorities have the authority to enforce retrospective taxation whether back to the recent three years, 2017, or even earlier. The three factors—legal, informational, and technological—provide practical conditions for retrospective taxation, explained as follows:

First, legal basis is sufficient, with clear retrospective periods. China applies a global taxation principle to tax residents. Individuals with a residence in China or meeting the 183-day residency standard are deemed “Chinese tax residents” and are required to declare and pay personal income tax on their worldwide income. This is based on existing provisions of the “Individual Income Tax Law” and related regulations, not a new obligation. Taxable offshore income includes comprehensive income from outside China (such as wages, labor remuneration, royalties, and licensing fees), business income, and other income (interest, dividends, property transfer gains, rental income, incidental income), with classification standards similar to domestic income.

Additionally, laws specify the legal liabilities for violations and the retrospective period for tax collection and recovery. Legal liabilities include tax and late fee recovery, administrative penalties, and criminal sanctions. The law explicitly states in Article 52 of the “Tax Collection and Administration Law” that if taxpayers or withholding agents fail to pay or underpay taxes, the tax authorities can recover taxes and late fees within 3 years. In special cases, this period can be extended to 5 years. For tax evasion, resistance, or fraud, the authorities can pursue unpaid taxes, late fees, or evaded taxes without the above time restrictions.

Second, CRS implementation breaks cross-border information barriers. China officially completed the domestic legislation for CRS in 2017 and began automatic exchange of financial account information with other CRS-participating jurisdictions in September 2018, covering major countries like the UK, France, Germany, Switzerland, Singapore, as well as tax havens such as the Cayman Islands, British Virgin Islands (BVI), and Bermuda. The accumulation and integration of historical exchange data have changed the asymmetry of cross-border tax information, providing a basis for tax authorities to assess risks and conduct substantive audits on earlier offshore income.

Finally, implementing “Data-Driven Taxation” enhances tax collection efficiency. The deepening application of the “Golden Tax Phase IV” system and comprehensive support from big data enable intelligent integration and analysis of cross-departmental, cross-year, cross-border fund flow data. Using big data models, authorities can accurately identify tax risks and conduct batch screening and precise targeting of offshore income. Coupled with the “Five-Step Work Method”—which includes reminders, urging rectification, interviews, case filing, and public exposure—tax enforcement is gradually shifting toward proactive substantive verification. Continuous technological upgrades support retrospective audits.

3. Turning Crisis into Opportunity: Taxpayer Compliance Response Guide

Taxpayers with offshore income and related tax risks can follow these measures to review their tax situation and respond compliantly:

First, conduct income and asset self-inspection to assess tax impact. Systematically review offshore bank accounts, securities accounts, insurance products, trust interests, and fund shares held since 2017 (especially 2022-2024). Organize income such as dividends, labor remuneration, and asset transfer gains for each relevant year. Cross-check with annual individual income tax filings to identify any unreported or underreported income. Based on the self-inspection results, estimate tax amounts, fines, or late fees (if applicable), and prepare appropriate responses for potential personal tax impacts.

Second, proactively remedy to reduce compliance costs. The actual costs of unreported offshore income include not only taxes but also daily late fees and administrative penalties, which have substantial legal consequences depending on the timing of handling. For individuals with historical filing issues, it is crucial to seize the self-inspection window and promptly complete declarations, pay taxes and late fees to avoid the accumulation of violations. If you have received risk alerts via SMS or calls from tax authorities, you may be in the “Reminder” stage of the “Five-Step Work Method.” Actively cooperate with rectification to potentially obtain leniency.

Third, seek professional advisory support. Offshore income tax issues involve complex factors such as domestic and foreign laws, tax treaties, and income classification. Taxpayers are advised to seek professional financial consulting to enhance response capabilities and prevent legal risks.

The FinTax team can provide customized tax planning and consulting services at different stages:

Stage 1: No notification of inspection from the tax authority. Assist clients in reviewing domestic and offshore income based on current tax management policies and offshore income risk control requirements, preparing for potential risk responses.

Stage 2: Notification of inspection received. Assist clients in organizing offshore income data for relevant years according to the tax authority’s requirements, prepare explanations based on income types; facilitate communication with tax inspectors; assist in responding to offshore income individual tax issues; and offer optimization suggestions for future offshore tax-related activities and domestic and international individual tax arrangements.

4. Summary

Since China participated in CRS information exchange, the ability of tax authorities to monitor offshore financial accounts and investment income has continuously improved, making offshore income tax risks more prominent. In this era of highly transparent tax information, taxpayers cannot rely on “regulatory blind spots.” Only by establishing comprehensive compliance awareness, early assessment of their overseas income structure, and paying attention to its tax implications in China can they effectively respond to regulatory upgrades, ensuring asset stability and security.