If you’ve made money with cryptocurrency, do you really need to pay taxes?

Written by: Xiao Sa’s legal team

A few days ago, Sister Sa’s team received consultations from old friends regarding tax issues for virtual currencies. Summarizing it, it basically comes down to two sentences: the first is, I made money trading cryptocurrencies—does mainland China have to tax it? The second is, if I keep my coins in Hong Kong (Thailand, Singapore, etc.), is it then fine? Will I be investigated in the future? Coincidentally, Sister Sa’s team will use today’s official account post to talk it through.

I. Taxation methods for different playstyles

The most common is low buy, high sell, profiting from the spread. This is the simplest—report it as income from transfer of property. The difference is calculated as the buy price minus the sell price, and then subtract costs such as transaction fees and on-chain Gas fees; the remaining profit is taxed at 20%. For example, if you bought coins for 100,000 yuan and sold them for 150,000 yuan, the 50,000 yuan profit spread would incur 10,000 yuan in tax. In mainland China, there is no concept that holding longer reduces the tax rate—holding for ten years is still the same rate.

Mining is more complicated and also has the biggest controversy. If an individual occasionally mines, reporting at 20% is generally not an issue. But if someone buys a large number of mining machines, builds a mining farm, and hires people to mine every day, the tax authorities are very likely to determine it as production and business operations, applying progressive excess tax rates ranging from 5% to 35%. Of course, costs like electricity bills and depreciation of mining machines can also be deducted.

For coins received via airdrops: generally, when you receive them, you don’t need to pay tax immediately, since you haven’t cashed them out yet. But if at that time there is an explicit market price, they might be treated as incidental income and taxed at 20%. When you actually sell later and have real gains, you definitely need to report.

For staking rewards and earning interest in DeFi: there is currently no clear guidance—this could be treated as interest income or as business income. If the amounts are not large, reporting as income from transfer of property should generally be fine. If the amount is large, it’s best to communicate in advance with the competent tax authority.

Crypto-to-crypto exchanges also require attention. Exchanging Bitcoin for Ethereum is, under tax law, treated as first selling the Bitcoin and then buying the Ethereum. If you make money at the selling stage, you must pay tax. Here’s a reminder: don’t only count the profit-making coin. Losses also need to be included. For annual aggregation, you report based on net gains—otherwise you may pay more tax. The filing period is from March 1 to June 30 each year, filing overseas income in the individual income tax APP or the Individual Electronic Taxation Bureau. Of course, Sister Sa’s team also wants to remind all old friends: proactively paying back taxes doesn’t mean that the act of trading cryptocurrencies itself is compliant by default—they’re two different things.

Is putting money in Hong Kong safe?

A very practical question is that many old friends in the crypto community put their coins in Hong Kong, and one benefit is taxes. Hong Kong has no capital gains tax, and also no estate tax or dividend tax. If individuals buy coins and hold them long-term, then sell them and earn money, generally they don’t need to pay tax in Hong Kong either—this is one of the reasons Hong Kong attracts crypto assets.

At this point, Sister Sa’s team wants to remind old friends: if your trading frequency is extremely high, your trading volume is very large, or you do it in an organized way—such as specifically trading coins, running paid trading courses, or helping others manage funds and charging management fees—then the Hong Kong tax authorities may determine that you are conducting business operations, and your profits would need to pay profits tax. For the first 2 million Hong Kong dollars of profits, the tax rate is 8.25%; for the portion above that, it’s 16.5%. The recognition standard is not only based on the number of transactions; they will comprehensively look at whether there is commercial organization and whether there is a systematic arrangement for earning profits. Pure high-frequency trading does not necessarily constitute business operations.

You also need to be careful about other types of income. If a company pays salaries using crypto, employees must pay salaries tax based on the Hong Kong dollar value converted from the market price at the time they received it. If a company receives crypto as payment for goods or services, it must also treat it as taxable income based on the market price on the transaction date. Last year, Hong Kong also expanded favorable policies: eligible fund transactions involving virtual assets’ gains can enjoy exemptions, and the tax-free scope for single family offices was also expanded to cover virtual assets, bringing in more institutional capital.

In the past, many people believed that virtual currencies are anonymous and therefore tax authorities can’t find them. But this situation has already changed recently. The OECD’s Crypto-Asset Reporting Framework—i.e., CARF—and the upgraded CRS 2.0 are bringing crypto assets into the global system for the automatic exchange of tax information. In simple terms: in the future, your trading data on exchanges will be automatically reported to the tax authorities of the country where you are a tax resident.

Traditional CRS covers banks, trusts, insurance, etc., but exchanges are not included. CARF fills that gap. Reporting obligations apply to intermediaries such as centralized exchanges and OTC brokers. Conversions between crypto and fiat, crypto-to-crypto exchanges, and transfers all need to be reported. Every conversion may be treated as a sale for tax purposes.

The first wave of countries like the UK and the EU will start exchanging information in 2027. The second wave—Hong Kong, Singapore, and the UAE—will start in 2028. Hong Kong has already passed legislation: data collection will begin in 2027, and formal exchange with other jurisdictions will start in 2028. At that time, customer data from licensed exchanges in Hong Kong will be exchanged into mainland tax authorities via CARF.

Of course, some old friends say: if I use a decentralized wallet and don’t have my identity verified on an exchange, then it won’t be found, right? Not necessarily. As long as you transfer coins from your wallet to an exchange and cash out, the exchange will record your wallet address and identity. Combined with on-chain analytics tools, all transactions your wallet previously made can be traced back. Fully anonymous is difficult to achieve under today’s technical conditions.

CRS 2.0 also has several other upgrade points worth paying attention to: shell companies and trusts must be penetrated layer by layer to reach the actual controllers; dual tax residents can no longer pick one place to report—both sides have to report. These changes will greatly affect customers doing cross-border asset allocation.

III. How to handle double taxation

Some old friends ask: if Hong Kong and mainland China classify the same income differently, will you end up paying tax in both places? This depends on the situation. If you’ve already paid tax abroad—for example, Hong Kong treats it as operating profits and you paid profits tax, or a U.S. exchange withheld tax on your behalf—then when you report in mainland China, you can apply for a tax credit. Under the principle of “by country not by item,” the credit limit is calculated based on the tax amount determined under mainland tax law; any unused credit can be carried forward for five years.

But many clients have a misconception: if Hong Kong classifies your gains as capital gains and therefore no tax is levied, then mainland China cannot provide a credit, because you have no previously paid tax amount to credit. This is not double taxation; it’s simply that Hong Kong doesn’t tax while mainland China does.

Conversely, if Hong Kong treats it as operating profits and charges tax at 8.25% or 16.5%, and then mainland China taxes again at 20% as income from transfer of property, that results in double taxation—in that case, you can apply for a credit. The tax burden differences caused by classification differences between the two jurisdictions must be calculated clearly when doing tax planning. How you design the transaction structure and how you arrange tax resident status will all affect the final outcome.

Another issue to note: if you hold coins through shell companies in low-tax jurisdictions, don’t distribute profits for the long term, and can’t state any reasonable business purpose, then mainland tax authorities can, based on the anti-avoidance provisions in Article 8 of the Individual Income Tax Law, treat it as deemed distribution, make tax adjustments, and charge back taxes plus late payment surcharges.

Since 2025, with the “Golden Tax Phase IV” system plus CRS linkages, tax authorities in various regions have tightened audits for cross-border income. Places like Hubei, Shandong, Shanghai, and Zhejiang have carried out special campaigns; overseas securities, offshore dividends, and cross-border labor services are all key targets. Some high-net-worth crypto clients have already received SMS messages warning of tax risk.

Most publicly notified cases involve things like overseas stock and offshore company dividend distributions. Tax authorities’ ability to penetrate overseas financial assets has become very strong. There was a case in Hubei involving a person surnamed Sun (Sun XXX). Through a BVI shell company, they concealed domestic dividends of 11 million yuan, and were assessed additional taxes and late payment surcharges totaling more than 1.4 million yuan. In Shandong’s case, through Hong Kong brokers trading U.S. stocks, they failed to declare, and they ended up paying more than 1.2 million yuan in back taxes. The technical methods used in these cases are logically the same when applied to virtual currencies.

Here are some practical recommendations for everyone.

First, you must keep transaction records. Whether it’s on an exchange or in a wallet, store for every transaction: the time, quantity, price, fees, and any address changes. After CARF rolls out, tax authorities will have platform data; if they don’t match, it will be very troublesome.

Second, report the buy-sell spread as income from transfer of property, and don’t misreport it as operating income. For mining, airdrops, and staking where you’re unsure how to classify, ask professionals in advance.

Third, proactively handle historical issues. If there were gains from prior years that weren’t declared, it’s recommended to contact the competent tax authority as soon as possible to file amended declarations.

Fourth, prepare CARF compliance in advance. Hong Kong starts collecting data in 2027, so there is a time window. Before then, sort out your historical transactions and consider whether to do a voluntary disclosure. The cost difference between proactive and passive is substantial.

Written at the end

The tax issue for virtual currencies, in essence, is a process of a gray area gradually becoming clearer. In the past few years, many people held the mindset of “don’t punish those who break the rules,” believing that they couldn’t be found. But as international regulatory frameworks take shape, on-chain analytics technology matures, and tax authorities’ data-sharing capabilities increase, that space is getting narrower.

Sister Sa’s team often tells old friends: don’t bet that regulation won’t come, and don’t bet you’ll be the lucky one. The property attribute of virtual currencies is recognized under mainland China’s legal framework; where there are gains, there are tax obligations. This big direction will not change. Hong Kong’s tax advantages still exist, but as information becomes transparent, the path to tax avoidance through information gaps will keep getting narrower.

Everyone’s trading pattern, holding structure, and tax resident status are different, so their risks and handling approaches differ as well. If your asset scale is relatively large or your transaction structure is complex, it’s recommended to find professionals in advance to conduct a comprehensive review.