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The General State Administration of Taxation of the PRC and its local authorities have required participants in the cryptocurrency industry, exchanges, private and corporate investors to provide comprehensive information on all transactions with digital assets from the beginning of 2022.
A fiscal audit is needed, officials say, to identify cases of individuals evading income tax, which is levied when conducting transactions with digital assets. The withholding tax rate on digital asset transfer income for individuals in China is 20%.
The country now has strict regulations that prevent financial activities in the form of offering virtual digital assets. However, the tax authorities believe that the previously established practice of virtual currency trading cannot disappear in the short period of time that has passed since the introduction of restrictions.
Under the current legal framework, China does not prohibit individuals from owning crypto assets, and the trading of virtual currencies is defined as an “invalid civil law act”, but is not expressly prohibited by law.
Thus, services provided by foreign exchanges in China can be regarded as “not expressly prohibited by law”, but at the same time, Chinese tax residents are required to pay VAT, income tax, as well as other taxes and duties.
Earlier, China announced the launch of the Universal Digital Payments Network (UDPN) cross-border payment system for settlements in stablecoins and CBDC, which is functionally capable of replacing the SWIFT interbank financial communications system.
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