China has stepped up its scrutiny of offshore corporate structures, with two state media outlets warning against cross-border tax avoidance in a move that signals intensified enforcement of tax rules governing mainland companies operating through offshore entities.
On Monday, the China Securities Journal, affiliated with Xinhua, and the Financial News, supervised by China’s central bank, disclosed details of a tax enforcement case involving the Hong Kong entity of a major mainland social media platform. The reports highlighted what they described as a broader tightening of regulatory oversight over the use of offshore jurisdictions by Chinese companies to manage capital and structure investments.
According to the Financial News, tax authorities denied the Hong Kong entity “beneficial owner” status after determining that it failed to satisfy the requirements for substantive business operations. As a result, the entity did not qualify for the preferential 5 per cent tax rate available under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) and instead became subject to the standard 10 per cent mainland withholding tax rate.
The Financial News said that “cross-border tax planning structures based merely on ‘formal compliance’ are no longer viable; structural designs must align with genuine commercial substance.”
According to the state media reports, the social media platform was required to pay an additional 356.1 million yuan (US$52.6 million) in taxes on distributed dividends, together with a further 191.8 million yuan in withholding tax on undistributed dividends. Neither publication identified the company involved.
However, the figures correspond with a disclosure made by Nasdaq-listed Hello Group in September 2025. The operator of the Momo dating application reported that it had been required to pay 547.9 million yuan in back taxes during the second quarter of 2025.
Hello Group, formerly known as Momo Inc., was incorporated in the British Virgin Islands in 2011 before being redomiciled to the Cayman Islands in 2014. The company conducts its mainland business through subsidiaries and affiliated entities in China.
Offshore incorporation structures have been widely adopted by Chinese companies over the past two decades, particularly in sectors where foreign investment has faced regulatory restrictions. Such arrangements have enabled companies to operate through overseas holding entities while conducting business in mainland China. Companies listed in Hong Kong using these offshore structures are commonly referred to as “red chips.”
In an April research note, Beijing Dacheng Law Offices said Hello Group’s tax reassessment was unlikely to be an isolated case. The law firm stated that companies should adopt the principle of “substance over form” and review existing offshore structures to ensure they satisfy requirements relating to beneficial ownership and commercial substance.
The latest enforcement action comes amid a broader campaign by Beijing to strengthen tax collection from offshore arrangements. Since last year, authorities have tightened the taxation of offshore gains earned by mainland residents and companies as local governments contend with rising debt burdens and the central government expands fiscal deficits to support domestic demand.
The campaign has extended across both mainland China’s A-share market and Hong Kong-listed companies. According to the source text, at least 80 listed companies have already been instructed this year to pay outstanding corporate income taxes and late-payment penalties to local tax authorities.
