China Starts Taxing Crypto Investors and Bitcoin Miners by 20%
For a long time, China has had a complicated relationship with the cryptocurrency industry, its government undecided on policies ranging from a blanket ban to an investigation into the usefulness of the blockchain. More recently, some local authorities have started imposing a hefty income tax on cryptocurrencies.
Specifically, a number of crypto whales, miners and other investors said they are undergoing personal income tax audits by their local tax departments, starting in early 2022 and still awaiting the results. Colin Wu reported on Jan. 25.
According to the report, this represents the implementation of a 20% personal income tax on investment profits or individual cryptocurrency investors and many Bitcoin (BTC) miners after several major national exchanges handed over to tax authorities extensive information on some of the whales’ transactions.
Different position on digital assets
While this practice would imply that the Chinese government may have finally recognized the legal status of cryptocurrencies, the reality is more complex, with tax authorities and financial authorities having different views on the legality of cryptocurrencies.
In October 2021, Tax news in Chinaa branch of the State Administration of Taxation, published an article saying that the services previously provided by foreign exchanges to Chinese residents “were not expressly prohibited by law”, but imposed VAT, corporate income tax, stamp duty and other related taxes on the income they get from China.
At the same time, China has strict restrictions on illegal financial activities in the form of digital currencies but, within its current legal framework, does not prohibit people from holding instruments such as Bitcoin, with trading in virtual currencies defined as a “ null civil deed”, but not expressly prohibited by law.
On the other hand, an article in the China Public Prosecutor’s Journal from November 2022, highlighted that in recent years the government has tightened the supervision of digital assets such as Bitcoin, citing the significant financial risks associated with them.
The tax department has its own basis for taxation, according to a senior tax professional, as tax audits on whales have become more stringent and tax authorities have recently launched inquiries into the overseas income of high-net-worth individuals.
China’s complex cryptographic connection
More than nine years ago, China began to limit the use of cryptocurrencies, primarily Bitcoin, by the country’s banks, but has since unknowingly become a silent crypto whale, also thanks to its restrictive measures, and has ranked among the top ten countries in cryptocurrency adoption.
Interestingly, FTX’s bankruptcy filing also recently revealed that mainland China accounted for the crypto exchange’s third-largest share of clients, just behind insular tax havens such as the Cayman Islands and the Virgin Islands.
In fact, China’s crypto holdings, the result of confiscating a large amount of Bitcoin and Ethereum (ETH) from the Plus Token scheme in 2019, are so massive that the country could bring down the entire crypto market in seconds if it wanted to. .