Crypto Taxation in China: A Complete Guide

China’s view on cryptocurrency is tricky; it bans a lot, but people still use it quietly. Trading and mining are heavily limited, yet many turn to foreign platforms to keep going. Knowing crypto tax rules is vital for people and companies to stay legal in this strict system. As laws change, following them keeps you out of big trouble in a risky yet promising market. The State Taxation Administration (STA) is the main authority, making sure taxes fit with China’s tough financial controls.

Tax Authorities & Regulations

The State Taxation Administration (STA) oversees China’s taxes, including those on crypto. Since 2017, Initial Coin Offerings (ICOs) and crypto exchanges have been banned, with mining and trading cracked down in 2021. Crypto isn’t legal cash or currency, it’s treated as a virtual good for taxes. The STA teams up with the People’s Bank of China (PBOC), which blocks banks from crypto dealings. Despite bans, anyone trading or holding crypto via foreign platforms must still pay taxes under income and property rules.

Types of Crypto Taxes in China

• Capital Gains Tax (CGT) – Applies to profits from selling or trading crypto, treated as gains from virtual commodities.
• Income Tax – Covers crypto earned from mining, staking, airdrops, or payments for services.
• Value-Added Tax (VAT) – Not typically applied to individual crypto trades, but businesses dealing in crypto-related services may face VAT.
• Other Taxes – Wealth tax does not apply, but inheritance tax may affect crypto passed to heirs, treated as property.

Tax Rates & Brackets

• Individuals pay capital gains tax at a flat 20% on crypto profits, regardless of holding period.
• Businesses face a 25% corporate income tax on crypto-related gains.
• Income tax ranges from 3% to 45% for individuals, based on annual earnings, applied to crypto income like staking or payments.
• Companies pay 25% income tax on crypto earnings.
• No specific tax exemptions exist for crypto, though general income thresholds (e.g., 5,000 CNY monthly) may reduce tax liability.

Crypto Transactions & Tax Treatment

• Buying and selling crypto – Buying with fiat isn’t taxed; selling for profit triggers a 20% CGT.
• Crypto mining and staking – Rewards are taxed as income at 3% to 45% based on total earnings.
• Crypto received as salary or payment – Treated as income, taxed at individual rates up 3% to 45%.
• Crypto-to-crypto trades – Considered taxable, with gains taxed at 20% based on market value at trade time.
• DeFi activities, lending, and yield farming – Earnings are income, taxed at 3% to 45%.
• NFT transactions – Sales profits face 20% CGT; creation or royalties may incur income tax.

Crypto Tax Reporting & Compliance

Individuals and businesses must report crypto earnings to the State Taxation Administration (STA) yearly. Individuals file the Individual Income Tax Return, and businesses use the Corporate Income Tax Return, detailing crypto gains or income. They must record trades, dates, amounts, and values often from foreign wallets due to local bans. Deadlines are March 31 for individuals and May 31 for companies, covering the previous year. Failing to file risks fines, audits, or asset seizure, especially as STA scrutiny grows.

Tax Deductions & Exemptions

China has no special tax breaks for crypto losses or costs, unlike other places. You can’t use crypto losses to lower taxes on other income, so relief is small. Businesses might cut taxes with mining expenses like equipment, but the mining ban makes this uncommon. The STA keeps rules tight, offering no breaks for small crypto users. Regular income tax limits give slight help, but nothing extra exists for crypto now.

Enforcement & Penalties for Non-Compliance

The STA uses blockchain tools, foreign exchange data, and KYC rules to monitor crypto, even with bans in place. China’s Great Firewall and PBOC help catch illegal moves. Tax evasion brings tough penalties, fines begin at 50% of unpaid tax and can hit 500% for deliberate dodging, under the Tax Administration Law. Serious cases risk asset freezes or prison. Enforcement is tighter now, focusing on offshore crypto, with STA working with global tax groups to plug gaps, so sticking to the rules is a must.

Future of Crypto Taxation in China

China might toughen crypto tax rules soon, pushing more reporting on offshore assets. The government stands against crypto but tests a digital yuan (e-CNY), showing some blockchain interest. No tax relief is coming for investors, though state-backed blockchain firms could get perks. Global rules, like the OECD’s, may force clearer laws, mixing control with new ideas.

Conclusion

China taxes crypto as a virtual commodity, with a 20% CGT on profits and income tax up to 45% on earnings. The STA enforces strict compliance amid bans, leaving no room for lax reporting. Investors and businesses must track transactions carefully to avoid hefty fines or legal trouble. As rules evolve, consulting a tax expert familiar with China’s policies is wise to ensure adherence and manage risks effectively.

FAQs

1. Is cryptocurrency legally recognized as money in China?
   No, cryptocurrency is not legal tender in China; only the yuan is recognized as an official currency. It is classified as a virtual commodity.

2. Are profits from selling cryptocurrency taxed in China?
   Yes, profits from selling cryptocurrency are subject to a 20% capital gains tax, calculated based on the gain in value.

3. Does China impose taxes on cryptocurrency mining rewards?
   Yes, mining rewards are taxed as income, with rates ranging from 3% to 45%, depending on the individual’s total annual earnings.

4. Are businesses required to report cryptocurrency transactions to the tax authority?
   Yes, businesses must report cryptocurrency transactions to the State Taxation Administration (STA) annually via the Corporate Income Tax Return.

5. Penalties for failing to report cryptocurrency taxes in China?
   In China a hefty percentage from 50% to 500% is fined for the unpaid tax amount, potential audits, and, in severe cases, asset seizure or imprisonment.