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China starts taxing crypto investors and Bitcoin miners 20%

China starts taxing crypto investors and Bitcoin miners 20%

China has had a tumultuous history with the cryptocurrency sector due to the government’s indecision regarding the best course of action, which has ranged from a complete ban to looking into the potential uses of blockchain. Recently, some local governments have begun to tax cryptocurrencies heavily on their income.

According to Colin Wu’s January 25 report, several crypto whales, miners, and other investors have said they are currently awaiting the results of personal income tax audits conducted by their local tax departments that began in early 2022.

The implementation of a 20% personal income tax on investment profits for individual cryptocurrency investors and many Bitcoin (BTC) miners is described in the report. This came about as a result of several significant domestic exchanges providing the tax authorities with extensive information about some of the whales’ transactions.

Differing stance on digital assets

The reality is more complicated, with tax authorities and financial authorities having differing views on the legality of crypto, despite the fact that this practise would seem to indicate that the Chinese government has finally acknowledged the legal status of cryptocurrencies.

In an article published in October 2021 by China Tax News, a division of the State Administration of Taxation, it was stated that the services previously offered to Chinese citizens by foreign exchanges were “not expressly prohibited by law,” but that the income they receive from China is subject to VAT, enterprise income tax, stamp duty, and other related taxes.

However, under the country’s current legal system, it is not illegal for individuals to own digital currencies like Bitcoin. Trading in virtual currencies is defined as a “invalid civil act,” but it is not expressly forbidden by law. At the same time, China has strict regulations on illegal financial activities involving digital currencies.

However, a November 2022 article in the China Public Prosecutor’s Journal noted that due to the significant financial risks involved with digital assets like Bitcoin, the government had recently tightened its oversight of them.

A senior tax expert claims that because tax audits on whales have become stricter and because the tax authorities have just started looking into high-net-worth individuals’ foreign income, the tax department has its own basis for taxation.

Differing stance on digital assets

Although this practise might suggest that the Chinese government has now officially acknowledged the legality of cryptocurrencies, the reality is more complicated, with tax authorities and financial authorities having different perspectives on the legality of crypto.

A report by China Tax News, a division of the State Administration of Taxation, from October 2021 claimed that while the services previously offered by foreign exchanges to Chinese citizens were “not expressly prohibited by law,” they were still subject to VAT, enterprise income tax, stamp duty, and other related taxes on the money they make in China.

However, within the confines of its current legal system, China does not forbid individuals from possessing digital currencies like Bitcoin. Trading in virtual currencies is defined as a “invalid civil act,” but it is not expressly forbidden by law.

On the other hand, a report from November 2022 in the China Public Prosecutor’s Journal highlighted how the government had recently tightened regulation of digital assets like Bitcoin due to the significant financial risks they posed.

Senior tax advisor: Due to stricter tax audits on whales and recent tax authorities investigations into high-net-worth individuals’ foreign income, the tax department has its own basis for taxation.

China’s complex crypto connection

China began limiting the use of cryptocurrencies, primarily Bitcoin, by its banks more than nine years ago, but as a result of these restrictions, it has since unwittingly developed into a silent crypto whale and is now one of the top ten countries for crypto adoption.

It’s interesting to note that, right after island tax havens like the Cayman Islands and the Virgin Islands, mainland China accounted for the third highest share of customers of the cryptocurrency exchange, according to the most recent FTX bankruptcy filing.

In fact, China has such vast crypto holdings—the result of seizing a sizable amount of Bitcoin and Ethereum (ETH) from the Plus Token scheme in 2019—that, if it so desired, it could instantly collapse the entire cryptocurrency market.

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