Is China About to Tax Virtual Currency Transactions?

Introduction

Recently, it has been reported that a certain Chen from Zhejiang profited from trading virtual money and failed to proactively declare taxes, resulting in the Zhejiang Provincial Taxation Bureau (hereinafter referred to as “Zhejiang Tax Bureau”) pursuing personal income tax and late fees totaling 127,200 yuan. On March 26, 2025, there was indeed a notice on the official website of the Zhejiang Tax Bureau, which interestingly stated: “After the policy guidance from the tax authorities, the taxpayer actively cooperated to explain the situation…”

(Screenshot source: Zhejiang Provincial Taxation Bureau official website)

As a lawyer from Mainland China who entered the web3 field early, Lawyer Liu really does not know what clear and concrete policies currently exist in the country regarding the taxation of Virtual Money.

Of course, before we officially discuss whether virtual money transactions can be taxed in mainland China, we need to first determine whether Mr. Chen mentioned in the announcement from the Zhejiang Provincial Taxation Bureau actually engaged in virtual money trading, after all, the official website does not specify whether Mr. Chen participated in USDT or other virtual money transactions.

1. Is Chen certain being taxed for profits from trading virtual money?

According to Wu’s tweet, the mention of Chen someone is due to the news source about being taxed for profits made from trading virtual money, which was actually disclosed by a company called “San Chi Fa Technology,” and the author Zhang Qingqing is also the CEO of the company. The article mentions: “I paid capital gains tax for trading virtual money in Singapore, so why is the Chinese tax bureau asking me to pay additional taxes?”

Then it listed the case of Chen certain, the original description was:

“Don’t believe that ‘paying taxes in Singapore means safety’! China does not recognize the legality of virtual money, and taxes paid abroad cannot be offset. Chen from Zhejiang made 636,000 by trading USDT, paid 100,000 in Singapore, and was still subject to an additional tax of 127,200 in China. The correct approach: trade through licensed exchanges in Hong Kong, keep transaction records, and voluntarily declare at 20% to avoid being classified as ‘tax evasion’ and facing penalties.”

In Lawyer Liu’s view, this passage is still somewhat disconnected from the current practical operations, legalities, and tax practices related to Virtual Money.

First of all, China strictly prohibits speculation on Virtual Money and business activities related to coins (which are classified as illegal financial activities), but the regulatory policy in China has never stated “not recognizing the legality of Virtual Money,” it just does not recognize the fiat currency attributes of Virtual Money. In the notice “On Preventing Bitcoin Risks” dated December 3, 2013, and the announcement “On Preventing Risks of Virtual Money Trading and Speculation” dated May 18, 2021, Bitcoin and Virtual Money are classified as “virtual goods”; in current judicial practice, especially in criminal judicial practice, China’s judicial authorities fully recognize the property attributes of Virtual Money (especially mainstream coins), which are objects protected by China’s criminal law.

Secondly, people in the coin circle rarely trade “USDT” because USDT is a stablecoin. Of course, there may be slight price differences between USDT, USDC, and other stablecoins across different exchanges or platforms, providing some arbitrage opportunities for a few, but it is difficult for ordinary people to profit from it, and I won’t elaborate on that.

Finally, the “correct approach” provided by the author is extremely difficult for the general public. To put it simply, mainland residents cannot even open an account at a licensed exchange in Hong Kong, let alone trade on it.

Finally, let’s return to the topic. Whether Chen某某 profited from trading Virtual Money and was subsequently pursued for payment by the Zhejiang Provincial Taxation Bureau is currently not explained by any official or authoritative institution, so we cannot be completely certain of the authenticity of this news.

2. Does our country’s law have regulations on taxation for virtual money transactions?

Even if Chen certain indeed supplements taxes due to trading coins, according to the announcement from the Zhejiang Provincial Tax Bureau, it is based on China’s “Individual Income Tax Law” and the “Implementation Regulations of the Individual Income Tax Law” and the “Announcement on Personal Income Tax Policies Related to Overseas Income” (Ministry of Finance, State Administration of Taxation) and other relevant regulations, none of which specifically confirm taxation on virtual money transactions.

On September 28, 2008, the State Administration of Taxation issued a reply to the Beijing Taxation Bureau: “Reply on the Issue of Individual Income Tax Collection for Income Obtained from Buying and Selling Virtual Money through the Internet.” It mentioned: “Income obtained by individuals from purchasing players’ virtual money online and selling it to others at a markup is considered taxable income for individual income tax and should be calculated and paid according to the ‘Income from Property Transfer’ item.”

But everyone in the coin circle must know that the leader of virtual money in the current context, Bitcoin, was officially mined in January 2009 when the “Genesis Block” was created. When the State Administration of Taxation made this reply, Bitcoin had not yet been born. This reply is certainly aimed at regulating centralized virtual currencies like QQ coins. As for whether this reply can be extended to the current virtual money field, it involves the legality of virtual currency trading in mainland China.

3. Is virtual money trading legal in mainland China?

Some friends are very interested in the taxation of Virtual Money trading mainly because once the government officially taxes Virtual Money trading, does that not prove the government’s formal recognition of Virtual Money trading?

As is well known, according to the “9.24 Notice”, the current virtual money policy in mainland China is one of strong regulation, prohibiting coin speculation, the exchange of virtual money and fiat currency, coin-to-coin exchange services, and the buying and selling of virtual money as a central counterparty, among other activities. It also prohibits any virtual money exchanges from operating in mainland China. These activities or businesses are collectively referred to as “illegal financial activities.”

4. Can tax authorities currently impose taxes on virtual money investment transactions?

Similarly, according to the “9.24 notice”, for domestic entities (legal persons, natural persons, and unincorporated organizations) investing in Virtual Money and its derivatives, it falls within the area of risk-taking, and our country’s laws do not provide protection. In this case, it is certainly difficult for the mainland tax authorities to form a coherent logic, legal basis, and regulatory policy regarding taxation on coin trading.

However, in practice, it cannot be ruled out that some tax authorities, due to a lack of understanding of our current regulatory policies on virtual money, only see that mainland web3 nomads have made money by trading coins (pointing out that after cashing out, they transfer the funds into their mainland bank accounts; simply holding coins for virtual money investment profits is something the tax authorities cannot know), and thus demand back taxes; they completely overlook the fact that these individuals are facing harsh realities such as having their bank accounts frozen by some mainland judicial authorities, being prohibited from withdrawing coins by exchanges, and not receiving compensation after bankruptcy (FTX), among other harsh situations.

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