Cryptocurrency has become a significant part of global finance, and many Chinese citizens are actively involved in digital asset trading—despite the complex regulatory environment. A common and pressing question among investors is: Do individuals in China need to pay taxes on cryptocurrency transactions? This article explores the legal and tax implications of holding and trading virtual currencies in China, offering clarity based on current regulations, judicial interpretations, and tax policies.
Is Holding or Trading Cryptocurrency Legal for Individuals in China?
Regulatory Landscape
While the Chinese government has imposed strict measures on cryptocurrency activities, it's important to distinguish between prohibition and regulation. Key documents such as:
- The 2013 “Notice on the Prevention of Bitcoin Risks” (Circular 289)
- The 2017 “Announcement on Preventing Risks of Token Issuance Financing” (94 Announcement)
- The 2021 “Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation” (924 Notice)
…have clearly stated that virtual currencies do not have legal tender status in China. However, none of these documents explicitly declare cryptocurrency as illegal property, nor do they categorically ban individual ownership or peer-to-peer transactions.
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Notably, the 924 Notice mentions that investments in virtual currencies “contrary to public order and good customs” may render civil acts invalid. But this clause is conditional—not all transactions automatically violate public order. Furthermore, these notices are administrative guidelines, not laws or regulations under the Civil Code, meaning they cannot independently invalidate private contracts.
Judicial Practice
In practice, courts have taken varying stances. Early rulings often dismissed crypto-related disputes by citing regulatory warnings. However, more recent decisions reflect a maturing legal understanding.
For example, the Shanghai No.1 Intermediate People’s Court ruled in case (2021) Hu 01 Min Zhong No. 11624 that private transactions of virtual currency are合法 (lawful) if they don’t involve illegal fundraising or exchange platforms. The court emphasized that neither Chinese law nor administrative regulations prohibit individuals from holding or transferring digital assets like BSN coins.
This suggests a growing judicial trend toward recognizing cryptocurrency as private property, subject to civil law protections—even within a restrictive regulatory framework.
Preliminary Conclusion
While institutional crypto activities (like exchanges or ICOs) are banned, individuals can legally hold and trade virtual currencies under certain conditions. If the state recognizes crypto as taxable property, it implicitly acknowledges its legitimacy as an asset—raising the logical follow-up: if you can be taxed on it, it must, in some way, be recognized.
Are Cryptocurrency Gains Taxable in China?
Even if regulatory policies discourage speculation, tax obligations may still apply—because taxation is based on economic reality, not just legality.
What Type of Tax Applies?
Under current tax law, gains from selling or transferring virtual currency are likely treated as “property transfer income” and subject to individual income tax (IIT).
Key legal basis includes:
- The Individual Income Tax Law of the PRC and its implementing regulations
- State Taxation Administration’s Circular Guoshui Han [2008] No. 818, which states that income from buying and reselling virtual currency online is taxable under the "property transfer" category
Although this circular originally referred to online game currency, tax authorities could reasonably extend its application to decentralized cryptocurrencies due to similar digital asset characteristics.
The standard IIT rate for capital gains ranges from 20%, depending on the nature and frequency of transactions (e.g., occasional sale vs. habitual trading).
What Happens If You Don’t Pay?
Failing to report crypto-related income carries serious consequences:
- Back taxes: The tax authority can require payment of owed amounts.
- Late fees: A daily penalty of 0.05% on unpaid taxes accumulates from the due date.
- Fines: Up to five times the amount of unpaid tax under Article 64 of the Tax Collection and Administration Law.
- Enforcement actions: Authorities may freeze bank accounts or seize assets.
- Criminal liability: In severe cases, charges like tax evasion (Article 201, Criminal Law) or evading tax arrears collection (Article 203) may apply—especially if there's intent to hide income or transfer assets.
- Additional penalties: These include travel bans and inclusion in national tax blacklists.
⚠️ Note: Even without formal crypto tax guidelines, general tax principles still apply. Ignorance or ambiguity in law does not exempt taxpayers from responsibility.
Can You Avoid Double Taxation?
Many Chinese investors trade on overseas platforms or reside abroad temporarily. If taxes were already paid overseas, double taxation becomes a real concern.
There are two potential solutions:
- Bilateral Tax Treaties: China has signed tax agreements with over 100 countries. These treaties often include clauses to prevent double taxation on the same income.
- Foreign Tax Credit: Taxpayers may claim a credit for foreign taxes paid when filing in China—but documentation and eligibility vary by jurisdiction.
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Consulting a cross-border tax expert is highly recommended to navigate these complexities.
Frequently Asked Questions (FAQ)
Q: Is owning Bitcoin illegal in China?
A: No. While financial institutions and businesses are banned from using crypto, personal ownership is not explicitly outlawed.
Q: Do I have to pay tax if I only trade peer-to-peer?
A: Yes. Whether through exchanges or private sales, any profit from transferring virtual currency may be taxable as property income.
Q: Has the Chinese government issued specific crypto tax rules?
A: Not yet. There’s no dedicated crypto tax regulation, but existing laws on property transfer and income reporting fill the gap.
Q: What if I convert crypto to RMB via offshore accounts?
A: Concealing income through foreign accounts increases audit and criminal risk. Tax authorities can cooperate internationally to trace such flows.
Q: Are NFTs or DeFi gains also taxable?
A: Likely yes. If they generate economic value or transferable rights, they may fall under similar tax principles as crypto.
Q: How should I calculate my taxable gain?
A: Subtract your acquisition cost (including fees) from the sale proceeds. Accurate records are crucial—especially given volatile prices.
Professional Recommendations
Given the lack of clear guidance and evolving enforcement practices:
- Seek expert advice: Consult tax professionals familiar with blockchain and international reporting requirements.
- Maintain detailed records: Track purchase dates, prices, wallet addresses, and transaction IDs.
- Plan proactively: Consider tax residency, timing of disposals, and use of compliant platforms.
- Stay compliant: Even in gray areas, voluntary compliance reduces long-term legal exposure.
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For high-net-worth individuals or frequent traders, strategic planning around tax residency and jurisdictional exposure can significantly reduce liabilities—without violating laws.
Final Thoughts
While China maintains a strict stance against cryptocurrency as money, it increasingly treats digital assets as property—and property creates tax obligations. Although no comprehensive crypto tax framework exists today, existing laws provide enough foundation for authorities to pursue non-compliance.
As global regulators tighten oversight, transparency and proactive compliance will be key. Whether you're a casual investor or an experienced trader, understanding your potential tax duties helps protect both your assets and your future.
The message is clear: Even in a restrictive environment, economic activity doesn’t escape taxation—especially when profits are involved.