Do I need to pay taxes on Web3 income in China?

Written by: FinTax

With the development of Web3 and cryptocurrency, an increasing number of investors and practitioners are facing an important question: Does Web3 income need to be taxed? This is a complex legal issue involving tax regulations in different regions, the nature of income, the sharing of international tax information, and other factors. This article briefly outlines the relevant tax obligations, combining the main provisions of Chinese tax law with specific Web3 business scenarios.

I. Web3 Income and Chinese Tax Regulations

In China, individuals must proactively pay taxes on foreign income, which is an undisputed conclusion. On one hand, China 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 escape notice. Since 1998, China has gradually clarified taxation rules for residents’ foreign income, forming a complete tax system for foreign income based on the “Interim Measures for the Administration of Personal Income Tax Collection on Foreign Income.” In 2020, the State Taxation Administration issued Announcement No. 3, further refining the scope and management measures for foreign income. By 2025, through the release of the “Administrative Measures for the Annual Consolidation and Settlement of Individual Comprehensive Income Tax,” the tax authority once again emphasized that foreign income must be truthfully declared according to law and strengthened the monitoring of foreign income—especially tracking income related to cryptocurrency and Web3. With the application of tax big data and intelligent technologies, tax authorities can more accurately identify which foreign income has not been declared.

From the perspective of international tax information sharing, in 2014, the OECD introduced the Automatic Exchange of Financial Account Information standards, namely AEOI and CRS. AEOI addresses how tax authorities exchange information, while CRS addresses how financial institutions collect and submit such information. China committed to joining in 2014 and began formally exchanging non-resident financial account information internationally in 2018. According to CRS requirements, Chinese tax authorities can now obtain a wide range of key information about Chinese residents holding accounts at overseas financial institutions: including name, address, taxpayer identification number, account balance, interest, dividends, capital gains, etc.—covering a broad range of entities: banks, brokerages, insurance companies, trusts, all included. Currently, China has achieved regular automatic exchange with over 100 countries and regions, including major financial centers such as the United Kingdom, Singapore, and Switzerland. This provides a critical data foundation for tax supervision, allowing for more accurate identification of undeclared foreign income.

II. Identification of Taxpayer Status and Tax Treatment of Different Web3 Incomes

(1) Identification of Taxpayer Status

The key point in Chinese tax law for determining whether foreign income must be declared is whether the individual 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 of their income—including foreign wages, labor income, investment returns, etc.—must be declared and taxed according to law. This means that whether Web3 income comes from overseas project wages or interest and liquidity mining rewards from DeFi platforms, tax issues may arise.

“Chinese tax resident” status is determined by the “domicile” standard and the “days of residence” standard:

1. Domiciled in China: Refers to individuals who habitually reside in China due to household registration, family, or economic interests. Even if they work or live abroad long-term, as long as they have not given up household registration or family ties, they may still be considered residents.

2. Residing in China for at least 183 days: Individuals who have resided in China for a cumulative total of 183 days in a tax year (January 1 - December 31), even without a domicile, are regarded as residents.

For the vast majority of Chinese citizens who live and work in China long-term, they are, in principle, resident individuals and must fulfill tax obligations in China on their worldwide income (including foreign income).

(2) Handling Different Types of Web3 Income

Web3 income takes various forms, but since Chinese tax law does not set a separate tax category for crypto assets, it is necessary to classify such income according to its “nature” within the current tax system. Web3 income can be divided into several main types, each of which is handled differently for tax purposes:

1. Wage Income: If someone serves as a developer, manager, etc., in an overseas Web3 project and receives USDT or tokens as wages via on-chain addresses, this income is generally considered “wage and salary income” in China and must be declared under individual income tax. If the project party has already withheld some taxes, there may also be issues of tax credit.

2. DeFi Income: Interest income from DeFi protocols, liquidity mining rewards, etc., may be regarded as “business income” or “other income.” If the participant frequently adjusts strategies or engages in arbitrage, such income may be deemed to have a more business-like nature, and the tax treatment will differ accordingly.

3. Airdropped Tokens: Airdropped tokens distributed by DAO projects to contributors are usually considered “occasional income” or “other income.” These tokens often have high market liquidity and value volatility, and tax authorities usually calculate taxable income based on the market value of the tokens at the time of receipt.

III. How to Respond: Tax Preparation for Web3 Income

For Web3 practitioners, actively addressing tax issues and preparing tax plans in advance is key to avoiding future risks. First, ensure the completeness of income reporting, especially in the context of cryptocurrency and Web3 projects, where the nature and value of income can fluctuate greatly, requiring timely recording of each transaction. Second, understand how to calculate and declare different types of income, particularly how to handle token lock-up periods, exchange rates, and the accounting of losses. Finally, maintain communication with tax professionals to ensure tax questions are answered professionally, and avoid unnecessary tax risks due to incomplete information or misunderstandings of tax policies.

Conclusion

With changes in the global tax regulatory environment, the tax obligations of Web3 practitioners and investors are becoming increasingly clear. Although tax treatment of crypto assets and Web3 income may differ between countries and regions, it cannot be ignored that the global trend toward tax transparency is making it easier to track such income. Therefore, Web3 practitioners should actively prepare, stay informed about and respond to tax changes, and proactively seek professional tax services to ensure compliance and avoid future tax risks.