How to Tax Cryptocurrency? Do Chinese Users Need to Declare?
Conclusion first: For residents of mainland China, gains from buying and selling cryptocurrencies are "taxable income" under tax law, but in practice, the vast majority of ordinary retail investors have not been subject to large-scale tax collection enforcement. If you only trade small amounts on centralized exchanges, very few people voluntarily file taxes at present. However, if you have significant cross-border fund flows or receive fiat withdrawals through overseas bank accounts, your risk of being noticed by tax authorities is rising as international information exchange mechanisms like CRS (Common Reporting Standard) and CARF (Crypto-Asset Reporting Framework) advance.
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Step 1: Understand the Core – How Chinese Tax Law Views Cryptocurrency Gains
What to do: First, get clear on the legal basis; don't judge whether "taxes are owed" based on gut feeling.
How to do it: Refer to these legal grounds:
Classification: A 2013 notice from five ministries defined Bitcoin as a "virtual commodity." The "9.24" notice in 2021 clarified that virtual currency-related business activities are illegal financial activities. However, the Individual Income Tax Law follows the principle of "taxability independence" – the legality of the income source does not affect the tax obligation.
Legal basis: The State Taxation Administration's 2008 "Reply on the Issue of Levying Individual Income Tax on Income from Individuals Trading Virtual Currency Online" (Guo Shui Han [2008] No. 818) stipulates that income from individuals buying and selling virtual currency is subject to 20% individual income tax as "income from property transfer." Although the document originally targeted online game virtual currency, tax authorities tend to apply it by analogy in practice.
Key conclusion: As long as you have net gains from buying and selling crypto assets, you have a tax obligation in principle. Tax rate: 20% for property transfer income.
What counts as done: You understand that there is a clear legal basis for taxation, but a gap exists in enforcement and collection.
Step 2: Know How Tax Authorities Can Discover Your Transactions
What to do: Understand through which channels tax authorities might obtain your transaction information so you can assess your risk.
How to do it: Review these pathways:
CRS (Automatic Exchange of Financial Account Information): Since 2018, China has exchanged financial account information with over 100 countries and jurisdictions. When you sell cryptocurrency and withdraw fiat to an overseas bank account (e.g., Hong Kong, Singapore), the account balance and interest changes will be captured by CRS and exchanged back to China's tax authorities.
Bank risk controls + large-amount fund scrutiny: Banks have an obligation to report large sums from unknown sources. If an overseas account shows large incoming funds while your domestic reported income is zero, it may trigger a tax audit.
CARF (Crypto-Asset Reporting Framework): A global information exchange standard specifically for crypto assets introduced by the OECD in 2022. Hong Kong SAR will begin data collection in 2027 and start exchanges in 2028. Although mainland China has not yet joined, information could still flow back through the Hong Kong channel.
Golden Tax System Phase IV big data comparison: Tax, banking, customs, and business registration data are interconnected, enabling automatic comparison of an individual's reported income with actual consumption and assets.
What counts as done: You clearly understand that "on-chain transactions may not be discovered on their own, but fiat withdrawals to bank accounts can be traced."
Step 3: Assess Your Situation – Ordinary User vs. High-Value Trader
What to do: Judge your current risk level based on your transaction scale; different circumstances have different compliance urgency.
How to do it:
Situation A: Small transactions, never withdrawn to an overseas bank account
Risk: Currently very low. Tax authorities lack direct means to obtain on-chain transaction information.
But note: If you later withdraw gains to a domestic bank card, the banking system may require you to explain the source of funds.
Situation B: Have an overseas bank account and have received exchange withdrawals
Risk: Relatively high. CRS will exchange your overseas account information back to China; tax authorities may demand an explanation of the fund source and back taxes.
A real case: In 2025, an individual surnamed Chen from Zhejiang traded virtual currencies through an overseas platform, had annual net gains of 636,000 RMB that were not declared, and was ordered to pay back taxes and late payment surcharges totaling 127,200 RMB as "property transfer income."
Situation C: Frequent trading, large amounts, or holding coins through offshore companies like BVI entities
Risk: Highest. If crypto assets are held through an overseas shell company, CRS rules can pierce through to the ultimate beneficial owner.
You may face back taxes, late payment surcharges (0.05% per day, approximately 18.25% annually), fines (50% to 5 times the tax), and in serious cases, criminal liability.
What counts as done: You have identified which situation fits you and understand the corresponding risk level.
Step 4: If Compliance Is Needed, Follow These Steps
What to do: If you decide to voluntarily report or receive a notice from the tax authority, follow this path.
How to do it:
Organize transaction records: Compile the time, quantity, and price of purchases and sales; keep bank transfer records, exchange transaction details, on-chain transaction hashes, and other cost documentation.
Calculate taxable income: Income from property transfer = sale proceeds - purchase cost - reasonable expenses. If cost documentation cannot be provided, tax authorities may assess the tax on a deemed basis.
Filing channel: Use the "Individual Income Tax" APP or the natural person electronic tax bureau website. File with the competent tax authority at the place of your employer; if you have no employer, file with the tax authority at your household registration location, habitual residence, or main source of income.
Foreign tax credit: If you have already paid tax overseas, you can apply for a tax credit within the credit limit by presenting the tax payment certificate to avoid double taxation.
What counts as done: Completed filing or complied with tax authority requirements as instructed.
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Common Misconceptions
Misconception 1: "Crypto trading is illegal, so gains don't need to be taxed." Wrong. Tax authorities look at whether you have gains, not which industry they come from. Gains from illegal activities can still be taxed.
Misconception 2: "I already paid tax overseas, so I don't need to worry about domestic tax." Wrong. Chinese tax residents have an obligation to report their worldwide income. The correct approach is "declare first, then credit" – apply for a tax credit with the overseas tax payment certificate.
Misconception 3: "Only big players are checked; small retail investors are ignored." Wrong. The 2025 Zhejiang case involved 636,000 RMB in gains and resulted in enforcement, showing that oversight has extended to middle-class investors.
If you only conduct small transactions and have never withdrawn funds to an overseas bank account, you can hold off for now but should keep all transaction records. If you have an overseas bank account and have received exchange withdrawals, it is recommended to consult a professional tax lawyer to assess your risk. If you receive a text message or call from the tax authority, do not avoid it – active cooperation and honest explanation often reduce penalties. When necessary, contact a specialized Web3 tax lawyer for a customized compliance solution.
