Virtual currency makes money. Are you paying taxes or not?

The last few days, the team received advice from friends about tax payments for virtual currency, and it was said that the first sentence was whether I made money and whether the mainland would pay taxes. The second sentence was whether Hong Kong (Thailand, Singapore, etc.) would be fine and whether it would be investigated later. It is precisely in today’s name that the team of sister-in-law would have to take this into account.

I. Taxes for different ways of playing

The most common is the difference between a low purchase price and a high sale price, which is the simplest one, based on the proceeds of property transfers. Buy-in price minus the bid price, deducting the costs of handling fees and chain-based Gas charges, with the remaining 20 per cent being paid. For example, $100,000 in currency, 150,000 in value, 50,000 in price differentials, 10,000 in tax.

Mining is more complex and controversial. Individuals occasionally dig up, with a 20% declaration low. If they buy large piles of machines, build mines, hire people to dig every day, the tax office will probably find this to be a production operation, applying an excess progressive rate of 5 to 35%, which, of course, can be deducted from electricity charges and the depreciation of machines.

The money dropped in the air is usually not taxed immediately upon receipt, but it has not yet materialized. But if there was a clear market value at that time, it could also be counted as an accidental gain of 20 per cent. When you sell it, the real gain is definitely to be declared.

There is no clear statement that interest may or may not be paid in exchange for a pledge of money. A small amount of money is less difficult to report on the proceeds of property transfers, and it is better to communicate with the tax authorities in advance.

The tax code considers it as selling bitcoins before buying them into the Etherpo, and paying taxes when they make money. It reminds us that not only the currency that is earned, but also the loss, are reported on a net gain basis each year, or are subject to additional taxes.The filing period is 1 March to 30 June each year, when a tax app or natural person's e-tax office makes a declaration of income outside the country. Of course, here's what I'm trying to tell your friends is that the voluntary payment does not mean that it is in itself in compliance.

Is the money safe in Hong Kong?

A real problem is that many old friends in the currency ring put their money in Hong Kong, one of its benefits being taxation. There is no capital gains tax, and there is no estate or dividends tax. Individuals buy long-term currency and sell the money they earn, usually without paying taxes in Hong Kong.

The team would like to remind your friends that if the transaction is particularly frequent, has a large volume of transactions or is being done in an organized manner — for example, by making special coins, introducing fee courses and helping others to collect overhead fees — the Hong Kong Revenue Authority may find you are operating with profits taxed. The first 2 million HK$ profit tax rate was 8.25 per cent, exceeding 16.5 per cent. The criteria for determining that the transaction is not limited to the number of transactions are a combination of commercial organizations and systematic profit arrangements. HF transactions alone do not necessarily constitute business operations.

Companies pay their wages in cryptocurrency, and employees pay taxes at the market value received. Companies collect the price of the cryptocurrency, and taxable income at the market price on the date of the transaction. Last year Hong Kong also expanded its preferences, exempting the proceeds from trading virtual assets from eligible funds, and extending the exemption for single-family offices to virtual assets, with more institutional money coming in.

In the past, many people thought virtual money was anonymous and not available to tax authorities, but this situation has changed in recent times, with OECD’s framework for crypto asset reporting, known as CARF, and an upgraded CRS 2.0 that is incorporating crypto assets into the global system of automatic exchange of tax information. In short, you will automatically report transactional data on the exchange to your tax office in the country where you are a tax resident.

The traditional CRS covers only banks, trusts, insurance, and not the exchange. CARF fills this gap.

Hong Kong has legislation in place, data collection was launched in 2027, and official exchange with other jurisdictions took place in 2028. By that time, customer data from Hong Kong’s licensed exchanges will be exchanged through CARF with the Mainland tax authorities.

Of course, old friends say that I'm using a decentrified wallet, not authentically certified on the exchange. It's not true. As long as you transfer it from the money to the exchange, the exchange will record your wallet address and identity. The analytical tool on the chain, all transactions made before this wallet, can be traced back. Full anonymity is difficult under current technical conditions.

Several upgrades are also noteworthy: shell companies, trusts, and the way in which they penetrate the actual controller, dual tax residents can no longer choose a local declaration, both of which need to be reported. These changes have a significant impact on customers that make cross-border asset allocation.

III. Addressing the issue of double taxation

Old friends ask whether Hong Kong and Mainlanders are taxable on both sides of the same income. This is a case in point. If they have paid taxes abroad, such as Hong Kong’s assessment that profits from their operations have been taxed, or the US exchange has withheld taxes, they can apply for credit in the interior.

But many customers have the wrong side: if Hong Kong counts your earnings as capital gains, it does not tax at all, then the Mainland cannot be compensated because you do not have taxes to pay. This is not double taxation; it is a non-recruited territory of Hong Kong.

In turn, if Hong Kong determines that business profits are taxed by 8.25% or 16.5%, then the Mainland is taxed by 20% on property transfer income, which creates double taxation, at which point credit can be applied. The difference between the tax obligations resulting from qualitative differences between the two places must be calculated clearly when planning.

It is also important to note that through the holding of currency by shell companies in low-tax areas, with long-term non-allocation of profits and without a legitimate commercial purpose, the Mainland tax authorities may adjust their allocation as a result of the anti-avoidance provisions of article 8 of the individual tax code, and increase the surcharge and delay payments.

Since 2025, the fourth edition of the tax plus CRS has significantly tightened local scrutiny of cross-border gains. Special operations have taken place in Hubei, Shandong, Shanghai, and Zhejiang, with offshore securities, offshore reds, and cross-border services as priorities.

Most of the cases reported are offshore shares, offshore companies are redacted, and tax authorities are already well placed to penetrate offshore financial assets. In Hubei’s case, Sun was able to hide 11 million dividends through BVI shell companies, with $1.4 million in surcharges and arrears.

Let me give you a few practical suggestions.

First, the transaction record must be kept. The time, amount, price, handling fee, address change for every transaction, whether it's an exchange or a wallet.

Second, the difference in prices is based on the transfer of property and is not misdirected as business income.

Thirdly, history issues are dealt with on a proactive basis.

Fourth, to prepare in advance for CARF compliance. Hong Kong started collecting data in 2027 and has a window of time.

At the end.

The tax problem of virtual currency is essentially a grey area that is becoming more clear. Many people have been feeling unaccountable for themselves in previous years.

The team always told my friends not to gamble that regulation will not come, nor that they are lucky. The property attributes of the virtual currency are recognized in the legal framework of the interior, and there is a tax obligation.

Each person has different patterns of transactions, holding structures, and tax resident status, as well as the corresponding risks and treatments.