Author: FinTax

With the development of Web3 and cryptocurrencies, an increasing number of investors and practitioners are facing an important question: Do Web3 earnings need to be taxed? This is a complex legal issue that involves tax regulations in different regions, the nature of income, and the sharing of international tax information. This article briefly outlines the relevant tax obligations in light of the main provisions of Chinese tax law and the specific business circumstances of Web3.

1. Web3 Income and Chinese Tax Regulations

In China, it is an indisputable conclusion that individuals must actively pay taxes on foreign income. On one hand, our country has established a relatively complete legal system for taxing foreign income; on the other hand, the deepening development of international tax information sharing mechanisms has made it impossible for residents' foreign income to evade taxation. Since 1998, China has gradually clarified the tax rules for residents' foreign income, forming a complete foreign income tax system based on the "Interim Measures for the Collection and Management of Individual Income Tax on Foreign Income." In 2020, the State Administration of Taxation issued Announcement No. 3, further detailing the scope of foreign income and management methods. By 2025, the State Administration of Taxation reiterated through the "Management Measures for the Comprehensive Income Settlement of Individual Income Tax" that foreign income must be declared truthfully according to the law, and strengthened monitoring of foreign income, especially tracking income related to cryptocurrencies and Web3. With the application of tax big data and intelligent technology, tax authorities can more accurately identify which foreign income has not been declared.

From the perspective of international tax information sharing, the OECD introduced the Automatic Exchange of Financial Account Information standard, namely AEOI and CRS, in 2014. AEOI addresses how tax authorities exchange information, while CRS addresses how financial institutions collect and report this information. China committed to joining in 2014 and officially began exchanging non-resident financial account information abroad in 2018. According to CRS requirements, Chinese tax authorities can now obtain various key information about Chinese residents held in foreign financial institutions: including name, address, taxpayer identification number, account balance, interest, dividends, capital gains, etc., and the scope of subjects is very broad—covering banks, brokerages, insurance, and trusts. Currently, China has achieved regular automatic exchanges with over a hundred countries and regions, including major financial centers like the UK, Singapore, and Switzerland, providing a crucial data foundation for tax supervision, allowing for more precise identification of unreported foreign income.

2. Taxpayer Identification and Tax Treatment of Different Web3 Income

(1) Identification of Taxpayer Status

The key point in Chinese tax law for determining whether foreign income needs to be declared is whether one qualifies as a tax resident. According to the "Implementation Regulations of the Individual Income Tax Law," as long as a person is a Chinese tax resident, all their income, including foreign wages, labor income, investment income, etc., must be declared and taxed according to the law. This means that whether Web3 income comes from wages for foreign projects or interest or liquidity mining rewards obtained through DeFi platforms, it may involve tax issues.

"Chinese tax residents" need to consider the "domicile" standard and the "days of residence" standard:

1. Domicile in China: Refers to individuals who have established habitual residence in China due to household registration, family, or economic interests, even if they work or live abroad for a long time. As long as they have not given up their household registration or family ties, they may still be recognized as residents.

2. Residing in China for 183 days: Individuals who reside in China for a cumulative total of 183 days within a tax year (January 1 - December 31) are considered residents, even if they have no domicile.

For the vast majority of Chinese citizens who live and work in the country for a long time, they are generally considered resident individuals and are required to fulfill tax obligations in China for income earned globally (including foreign income).

(2) Treatment of Different Web3 Income

Web3 income comes in various forms, but since Chinese tax law does not have a separate tax category for crypto assets, it is necessary to find corresponding classifications within the current tax system based on the "nature of income." Web3 income can be divided into several main types, each with different tax treatments:

1. Wage Income: If someone holds a role in a foreign Web3 project, such as development or management, and receives USDT or tokens as wages through an on-chain address, this income is typically regarded as "wage income" in China and must be declared under individual income tax. If the project party has already withheld some tax, there may also be issues related to tax credits.

2. DeFi Earnings: Interest income, liquidity mining rewards, etc., from DeFi protocols may be considered "business income" or "other income." If participants frequently adjust strategies or engage in arbitrage operations, this situation may be recognized as income of a more business-like nature, leading to different tax treatments.

3. Airdropped Tokens: Tokens airdropped by DAO projects to contributors are usually considered "occasional income" or "other income." The market liquidity and value fluctuations of these tokens are significant, and tax authorities typically calculate taxable income based on the market value at the time the tokens are received.

3. How to Respond: Tax Preparation for Web3 Income

For Web3 practitioners, actively addressing tax issues and preparing tax planning in advance is key to avoiding future risks. First, ensure the completeness of income declarations, especially in cryptocurrency and Web3 projects, where the nature and value volatility of income can be significant, requiring timely recording of each transaction. Second, understand how to calculate and declare different types of income, particularly how to handle issues related to token lock-up periods, exchange rates, and loss accounting. Finally, maintain communication with tax experts to ensure that tax issues are professionally addressed, avoiding unnecessary tax risks due to incomplete information or misunderstandings of tax policies.

Conclusion

As the global tax regulatory environment changes, the tax responsibilities of Web3 practitioners and investors are gradually becoming clearer. Although the tax treatment of crypto assets and Web3 income may vary across different countries and regions, it is undeniable that the trend towards global tax transparency makes tracking these incomes easier. Therefore, Web3 practitioners should actively prepare, stay informed about and respond to tax changes, and proactively seek professional tax services to avoid future tax risks through robust compliance efforts.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。