Shanghai Taxation Bureau: Individuals should pay income tax on profits from buying and selling virtual currencies online
For cryptocurrency investors in mainland China, understanding and complying with relevant regulations is crucial for tax compliance.On January 3, 2024, the Shanghai Taxation WeChat official account published an article titled "Common Misunderstandings about Individual Income Tax on Business Income and Classified Income", reiterating that individuals need to pay personal income tax when buying and selling virtual currencies online (the article has since been deleted). Previously, TaxDAO published an article titled "Do Cryptocurrencies as Legal Property Need to Pay Taxes in Mainland China?", which analyzed in detail the taxable matters related to cryptocurrency transactions in Mainland China. This article restates the key points regarding the taxation of relevant transactions.
The document Guo Shui Han [2008] No. 818 mentioned in the Shanghai Taxation article is a key document from the Chinese tax authorities regarding the tax treatment of individuals trading virtual currencies online. The core provision of this document is that income earned by individuals from purchasing virtual currencies from players online and selling them at a markup is considered taxable income under personal income tax and should be calculated and paid according to the "income from property transfer" item.
An important aspect of calculating taxable income is determining the original value of the property. Guo Shui Han [2008] No. 818 clearly states that the original value of the property when an individual sells virtual currency includes the price paid for purchasing the currency and related taxes and fees. For cryptocurrency investors, this means that when calculating taxable income, they must deduct the cost of purchasing the cryptocurrency and any taxes paid from the sales revenue. Guo Shui Han [2008] No. 818 also stipulates that if an individual cannot provide proof of the original value of the property, the competent tax authority will determine the original value of the property. For cryptocurrency investors in Mainland China, understanding and complying with relevant regulations is crucial for tax compliance.
If you need more comprehensive and professional information, you can further read TaxDAO's previous article "Do Cryptocurrencies as Legal Property Need to Pay Taxes in Mainland China". This article discusses in detail the tax treatment of cryptocurrencies as legal property in Mainland China. The article analyzes based on the "Identification of the Property Attributes of Virtual Currency and Issues Related to the Disposal of Involved Property" published by the People's Court Daily, emphasizing that although cryptocurrencies like Bitcoin are not considered legal tender in China, they are protected by law as legal property. The article points out that there are currently no specific tax regulations regarding the income from the transfer of cryptocurrencies in China, but according to existing laws, such transfer income should be included in personal income tax. Meanwhile, many countries around the world have established specific regulations on the taxation of cryptocurrency holdings and transfers, and Mainland China may follow suit in formulating relevant tax laws. The article concludes by noting that the main tax challenges faced by cryptocurrency investors in China are the uncertainty of current policies and the ambiguity of tax law formulation.
