In 2017, China launched a comprehensive crackdown on cryptocurrency activity, shutting down local exchanges, banning initial coin offerings (ICOs), and later phasing out cryptocurrency mining. Despite the tightening rules, digital assets continued to circulate through over-the-counter trading, foreign platforms, and decentralized networks. As someone interested in this space, you need to understand how tax obligations work within a system that allows little room for open participation. Crypto remains active beneath the surface, but that doesn’t mean the tax conversation disappears.
While less publicized than other regions, China’s tax treatment of digital assets deserves attention. Much like our crypto tax guide in the USA brings clarity to investors there, this guide sheds light on what you must know to understand tax expectations in China. This piece examines the current tax environment, enforcement patterns, and strategies for effective compliance management.
China’s Regulatory Attitude Toward Cryptocurrency
China’s regulatory approach to cryptocurrency has been firm and consistent in its intent to control the sector. Since 2017, financial authorities have systematically enforced policies that limit the public’s direct access to cryptocurrencies. The closure of domestic exchanges and prohibition of ICOs marked the beginning of a series of regulatory decisions aimed at minimizing financial risk and maintaining monetary stability. These policies not only impacted businesses operating in the digital asset space but also pushed individual investors to seek alternatives abroad. Although these measures caused disruption, trading activity did not entirely disappear. It shifted, often moving to peer-to-peer channels, foreign exchanges, and decentralized applications.
The Chinese government’s primary concern revolves around capital flight, fraud, and the destabilization of the financial system. The central bank and key regulatory agencies remain cautious about cryptocurrencies being used for speculative trading or as vehicles to bypass strict capital controls. In 2021, authorities reaffirmed their position by declaring all crypto-related activities illegal, including services offered by overseas exchanges to domestic users. Yet the growth of blockchain technology continues, especially in sectors such as digital currency development under state supervision. The distinction lies in the government’s support for centralized digital innovation versus its rejection of unregulated crypto ecosystems. The official stance remains consistent: cryptocurrencies pose potential risks, and regulatory frameworks will continue evolving to mitigate them.
What are the Taxable Events in Cryptocurrency in China?
Taxation in China does not operate under a specific crypto tax law. Instead, authorities apply existing tax codes to cryptocurrency transactions through interpretive enforcement.
- Any time you convert cryptocurrency to fiat, transfer assets to others, or engage in trades for profit, you trigger a taxable event. Buying crypto with fiat and holding it may not result in immediate tax obligations, but once you sell, trade, or use it to settle a transaction, you become subject to tax assessment. Exchanges conducted outside registered platforms and private wallet-to-wallet transfers also fall within the scope if gains can be realized.
- Using crypto as payment, even through smart contracts, can create reportable income depending on how the gain is structured. Authorities may view the value increase between acquisition and disposal as a capital gain or operational income.
- Mining operations, though significantly restricted in China now, were previously taxed as business income before being phased out through regulation.
- Gifts of digital assets can also have tax consequences for both the giver and the recipient, depending on the valuation and the specific context.
Although enforcement can vary, these principles generally guide the treatment of taxable events under Chinese tax law.
What are the Classifications of Crypto Income and Tax Rates in China?
China does not currently have a separate tax bracket for crypto income. Instead, tax on digital assets falls under existing personal income tax categories. If you engage in crypto trading as a business or with high frequency, tax officials might classify your activity as “business income,” subject to progressive rates from 5 percent to 35 percent. For occasional traders or retail investors, capital gains taxes may apply under “property transfer income.” This category is subject to a flat rate of 20 percent on the net gain. The taxable amount reflects the difference between the sale price and the original acquisition cost, converted to RMB using official exchange rates at the time of each transaction. Airdrops and rewards from liquidity pools fall under the category of “incidental income,” which is taxed at 20 percent as well. Each classification influences the required forms and documentation. Understanding which income stream falls into which category becomes essential for full compliance
Record-Keeping Requirements and Audit Triggers
The Chinese tax authority expects you to maintain clear and consistent records of all taxable transactions involving cryptocurrency. This includes purchase dates, asset types, acquisition costs, selling prices, exchange rates, and the platforms used for transactions. Even if you use foreign or decentralized exchanges, these details form the foundation of your tax filings. The burden of proof lies with you, and incomplete documentation can lead to reassessment or penalties. Since digital wallets are easily tracked once linked to a real identity, failure to present a complete paper trail could trigger suspicion during audits. The requirement for documentation extends beyond sales transactions to cover transfers, swaps, staking rewards, and airdrops if gains are involved.
China’s State Taxation Administration (STA) has increased its focus on data collection and analytics in recent years. The government utilizes artificial intelligence and transaction-monitoring software to identify inconsistencies and track potentially hidden assets. This makes it vital to ensure all your records align with actual activity across wallets and platforms. Using tax software or reporting tools can help automate the aggregation of this data, particularly when working across multiple accounts or blockchains. These tools are essential when dealing with various methods to efficiently tax crypto, allowing you to stay ahead of reporting obligations and avoid late filings or penalties.
Audit triggers can include sudden large transactions, foreign exchange inflows linked to digital assets, or reports from financial institutions or platforms cooperating with authorities. Any income declaration that significantly differs from prior years may also raise red flags. Regular crypto traders and individuals who receive income through digital channels are especially advised to remain vigilant. Keeping transparent and up-to-date records can prevent misunderstandings and improve your standing if authorities review your filings. It also ensures that your crypto activities stay within the framework of legal tax behavior as China continues to adapt its oversight of the digital asset ecosystem.
What is China’s Stance on Offshore Crypto Holdings?
China takes a strict approach toward undeclared offshore income, and this stance applies to foreign cryptocurrency accounts. If you hold crypto on platforms based outside the country, the government considers those holdings taxable once you realize income. The source of the platform does not exempt the income from tax responsibility if you are a tax resident in China. Tax obligations exist even when you transact solely on foreign exchanges using foreign fiat currencies. In the eyes of the tax authority, global income applies to all citizens and residents, including capital gains or business income from cryptocurrency trades executed abroad.
The State Administration of Foreign Exchange (SAFE) and the STA closely monitor capital movements, especially when funds are returned to domestic bank accounts. If crypto income is converted and deposited locally, this transaction may trigger inquiries from tax authorities. You are expected to report these activities, including the jurisdiction of the foreign exchange, the amount of gains, and the timeline of the transaction. Failure to disclose offshore income can lead to financial penalties or legal consequences. Cross-border information sharing agreements also enable China to access foreign account data, thereby enhancing its enforcement capabilities.
Maintaining transparency when dealing with offshore crypto holdings requires diligence. Using accurate software solutions to track wallet movements and performance is important. Tools that offer the ideal features for a crypto tax API, such as multi-platform support, wallet integration, and historical pricing, can significantly enhance reporting accuracy. This allows you to stay organized and aligned with evolving expectations. As international scrutiny around crypto grows, staying ahead of compliance on offshore holdings becomes essential for anyone serious about investing or trading in the space from within China.
The Role of Digital Surveillance and Enforcement
China’s tax enforcement is increasingly relying on digital surveillance to monitor financial behavior and track cryptocurrency activities. Agencies utilize artificial intelligence and big data analytics to identify suspicious patterns and verify reported income. Real-time data streaming with WebSockets has improved their ability to track wallet activity and transactions quickly, making it easier to link addresses with individuals.
Once a wallet interacts with local banks or known platforms, authorities can narrow down its ownership. Surveillance also involves data from telecoms and financial institutions, helping the government build a clearer financial profile for each person. These tools reduce anonymity and increase audit risks for individuals who fail to report or underreport cryptocurrency gains.
Crypto Businesses and Entity-Level Taxation in China
Businesses involved in cryptocurrency services in China are subject to corporate tax, typically under the enterprise income tax rules. These apply to firms offering blockchain platforms, token products, or related services, even if they operate under different service labels. Despite restrictions, some companies continue to operate from abroad while serving Chinese users.
If their operations involve Chinese income streams, they may still be subject to domestic tax rules. The tax rate typically sits at 25 percent. Companies running blockchain projects, data services, or promotional campaigns should remain aware of how tax authorities interpret their income models. Any spike in revenues or visibility may invite more scrutiny.
What are the Tax Implications for Various Crypto Primitives in China?
Here are the governmental stances on the following crypto activities:
1. Crypto NFTs and Digital Collectibles in China?
Profits from NFT sales or trades are taxable under Chinese tax laws. If you sell an NFT at a higher price than you bought or created it for, you owe income tax on the gain. Regular creators may be subject to personal income tax rules, depending on the frequency with which they mint or sell NFTs. Buyers reselling for profit also trigger capital gains taxes. Since NFT valuations are complex and often tied to international platforms, authorities are beginning to apply existing tax rules to them. Transactions involving crypto as payment add another layer, but the tax obligation stays. Even if NFTs are acquired abroad, Chinese residents must report income if they benefit from the sale.
2. DeFi, Token Swaps, and Staking Income
Decentralized finance activities, such as token swaps and staking rewards, create taxable income when gains are realized. Swapping tokens counts as disposing of one asset and receiving another, which may trigger capital gains taxes based on the price difference. Staking income is viewed as a form of earnings and must be reported accordingly. If payments are made regularly or reinvested, they may resemble passive income. Complex DeFi layers and automated farming don’t exempt users from the obligation to report. High-volume users and those with significant staking rewards should keep detailed records in case of review.
3. Stablecoins, Fiat Onramps, and Market Liquidity
Stablecoins bridge the gap between crypto and fiat, and their use in China comes with tax considerations. Converting fiat to stablecoins may not be taxed directly, but gains from subsequent transactions typically are. Using stablecoins in trades or DeFi activities can result in taxable events based on changes in asset value. Fiat on-ramps, such as exchange deposits, are monitored closely, as they reveal user intent and help authorities track financial flows. Market volume and behavior at these points influence tax oversight. Changes in stablecoin use also impact liquidity in cryptocurrency markets, which Chinese regulators closely monitor as they refine their enforcement approach.
Best Practices for Crypto Tax Compliance in China
Staying compliant with China’s evolving cryptocurrency tax landscape involves maintaining detailed transaction logs that include timestamps, amounts, counterparties, and a description of each activity. Using software tools or platforms that automate tracking can help reduce human error and ease the burden during tax season. Reporting income from trading, mining, staking, NFTs, and DeFi accurately shows good faith and can deter audits. Consulting with a tax advisor familiar with China’s crypto policies also makes a big difference in managing classification and timing issues. Those operating across borders should disclose offshore assets when required and ensure proper documentation is in place. Authorities pay close attention to patterns that suggest avoidance or underreporting, so transparency becomes essential. The key takeaway is this: as rules grow more precise, consistent documentation and honest reporting remain your strongest defenses.
Vezgo: The Crypto API
Vezgo makes crypto tax compliance easier by giving you access to a unified API that pulls data from exchanges, wallets, DeFi protocols, and more. Instead of juggling multiple sources or building integrations from scratch, you can retrieve accurate balances, positions, and transactions in one place. With Vezgo, you gain real-time visibility into your users’ crypto activity across hundreds of platforms, making tax reporting in complex jurisdictions, such as China, far more manageable.
If you’re building a tax solution or tracking crypto income for individuals or businesses, Vezgo equips you with the data precision regulators expect. From smart contracts to NFTs, staking rewards to token swaps, you’ll have the structured insights needed to help your users stay ahead of audit risks and meet evolving standards, including crypto tax compliance with Revenue Procedure 2024-28. Try Vezgo today and streamline your global crypto tax data management.
FAQs
Here are answers to some of the most frequently asked questions about crypto regulation in China:
Is Cryptocurrency Allowed In China?
Cryptocurrency is not legally recognized as a means of payment in China, and financial institutions are banned from offering crypto-related services. Authorities have also prohibited crypto exchanges from operating within the country and have cracked down on mining operations. However, owning cryptocurrency is not illegal. Individuals may still hold digital assets, but they cannot legally use them for transactions or promote crypto services within the mainland.
Is Binance Allowed In China?
Binance is not allowed to operate in China. The platform withdrew its operations from the Chinese market in 2017 due to increased regulatory pressures. Since then, Chinese regulators have intensified efforts to block access to offshore crypto exchanges, including Binance, through internet restrictions and surveillance. While some users may attempt to access the platform through unofficial methods, such activity carries significant legal and compliance risks.
Can Chinese People Buy Bitcoin?
Chinese residents can technically buy Bitcoin, but doing so comes with legal risks and operational challenges. Local exchanges have been shut down, and access to foreign platforms is restricted. Despite these barriers, some individuals still manage to acquire Bitcoin through peer-to-peer networks or overseas services. However, such activities are closely monitored by authorities, and any involvement in trading or promoting cryptocurrencies could lead to investigation or penalties.
Leave a Reply