Author: Lawyer Liu Zhengyao

Introduction

Recently, it has been reported online that a certain Mr. Chen from Zhejiang was pursued by the Zhejiang Provincial Taxation Bureau (hereinafter referred to as "Zhejiang Tax Bureau") for personal income tax and late fees totaling 127,200 yuan due to profits from trading virtual currencies without voluntarily declaring them. On March 26, 2025, there was indeed a notice on the Zhejiang Tax Bureau's official website, which interestingly stated: "After policy guidance from the tax authorities, the taxpayer actively cooperated to explain the situation…"

（Screenshot source: Zhejiang Tax Bureau official website）

As a lawyer who has been involved in the Web3 field for a long time, Lawyer Liu is not aware of any clear and practical policies regarding the taxation of virtual currencies in China.

Of course, before formally discussing whether virtual currency trading can be taxed in mainland China, we need to first determine whether Mr. Chen mentioned in the Zhejiang Tax Bureau's announcement actually engaged in virtual currency trading, as the official website does not specify whether Mr. Chen traded USDT or other virtual currencies.

1. Was Mr. Chen taxed for profits from trading virtual currencies?

According to a tweet by Wu, the source of the information stating that Mr. Chen was taxed for profits from trading virtual currencies actually comes from a company called "San Chi Fa Technology," and the author, Zhang Qingqing, is the CEO of the company. The article mentions: "If I paid capital gains tax for trading virtual currencies in Singapore, why does the Chinese tax bureau still require me to pay additional taxes?"

It then cites Mr. Chen's case, described in the original text as:
"Don't believe that 'paying taxes in Singapore means safety'! China does not recognize the legality of virtual currencies, and taxes paid abroad cannot be offset. Mr. Chen from Zhejiang made 636,000 by trading USDT, paid 100,000 in Singapore, and was still required to pay an additional 127,200 in China. The correct approach: trade through a licensed exchange in Hong Kong, keep transaction records, and proactively declare at 20% to avoid being classified as 'tax evasion' and facing penalties."

In Lawyer Liu's view, this statement is somewhat detached from the current practical operations, laws, and tax practices related to virtual currencies.

Firstly, China strictly prohibits speculation on virtual currencies and operational business activities related to them (classified as illegal financial activities). However, the regulatory policies regarding virtual currencies in China have never stated that "virtual currencies are not recognized as legal," but rather that they do not recognize the legal tender status of virtual currencies. In the notices issued on December 3, 2013, regarding the prevention of Bitcoin risks, and on May 18, 2021, regarding the prevention of risks from virtual currency trading speculation, Bitcoin and virtual currencies were classified as "virtual goods." In current judicial practice, especially in criminal judicial practice, Chinese judicial authorities fully recognize the property attributes of virtual currencies (especially mainstream coins), which are protected under Chinese criminal law.

Secondly, people in the crypto community rarely "trade USDT," as 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, but it is difficult for ordinary people to profit from this, and I won't elaborate further.

Finally, the "correct approach" suggested by the author is extremely difficult for the general public. Simply put, it is nearly impossible for mainland residents to open accounts at licensed exchanges in Hong Kong, let alone trade there.

Returning to the main topic, whether Mr. Chen profited from trading virtual currencies and was subsequently pursued by the Zhejiang Tax Bureau is currently not clarified by any official or authoritative institution, so we cannot fully confirm the authenticity of this information.

2. Does our law provide for taxation on virtual currency trading?

Even if Mr. Chen indeed had to pay additional taxes due to trading virtual currencies, according to the announcement from the Zhejiang Tax Bureau, it is based on China's "Individual Income Tax Law," the "Implementation Regulations of the Individual Income Tax Law," and the "Announcement on Individual Income Tax Policies Related to Overseas Income" (Ministry of Finance, State Taxation Administration), none of which definitively state that taxes are imposed on virtual currency trading.

On September 28, 2008, the State Taxation Administration issued a reply to the Beijing Tax Bureau: "Reply on the Issue of Individual Income Tax on Income from Buying and Selling Virtual Currencies via the Internet," which mentioned: "Income obtained by individuals through the online acquisition of virtual currencies from players and selling them at a markup is considered taxable income for individual income tax and should be calculated and paid according to the 'income from property transfer' category."

However, those in the crypto community surely know that Bitcoin, the leading virtual currency in the current context, was only officially mined in January 2009 with the "genesis block." When the State Taxation Administration issued this reply, Bitcoin had not yet been created. This reply was certainly aimed at regulating centralized virtual currencies like QQ coins, and whether this reply can be extended to the current virtual currency field involves the legality of virtual currency trading in mainland China.

3. Is virtual currency trading legal in mainland China?

Some friends are particularly interested in the taxation of virtual currency trading mainly because if the authorities officially impose taxes on virtual currency trading, does that not imply official recognition of virtual currency trading?

As is well known, according to the "9.24 Notice," the current virtual currency policy in mainland China is characterized by a strong regulatory attitude, prohibiting speculation on virtual currencies, prohibiting the exchange of virtual currencies for legal tender, prohibiting currency-to-currency exchanges, and acting as a central counterparty to buy and sell virtual currencies, among other prohibitions. It also prohibits any virtual currency 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 currency investment trading?

Similarly, according to the "9.24 Notice," for domestic entities (legal persons, natural persons, and non-legal entities) investing in virtual currencies and their derivatives, it falls under the category of risk-bearing, and Chinese law does not provide protection. Given this, it is logically, legally, and regulatory-wise difficult for mainland tax authorities to impose taxes on cryptocurrency speculation.

However, in practice, it cannot be ruled out that some tax authorities, due to a lack of understanding of the current regulatory policies regarding virtual currencies in China, only see that mainland Web3 participants have made money from trading (pointing out that after cashing out, the funds are transferred to their mainland bank accounts; simply holding virtual currencies does not allow tax authorities to know about the profits), and thus require them to pay additional taxes; they completely overlook the fact that these individuals have been subject to account freezes by some mainland judicial authorities, have had their accounts frozen by exchanges preventing withdrawals, and have faced situations where they are not compensated after bankruptcy (like FTX).

As for what to do if you encounter a situation similar to Mr. Chen mentioned at the beginning of the article in the past, present, or future, you can privately message Lawyer Liu, as this falls under the knowledge payment area for lawyers (just a little self-promotion).

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