Declaration and Documentation Preparation for Virtual Asset Income of Individuals in Mainland China

Individuals who have held virtual assets for many years often encounter several practical issues when preparing their tax situation: transaction records scattered across different platforms, multiple transfers between wallets, some assets originating from work compensation, and others from buying and selling, with the final amount received in bank accounts not matching the earnings displayed on the platforms.

To address these issues, it is necessary to clarify how the income was generated, which category of taxpayer one belongs to, and how to substantiate transactions and costs. The current individual income tax system in mainland China provides basic rules regarding residency status, income categories, property transfers, foreign income, and tax credits; specific trading scenarios involving crypto assets need to be confirmed with the tax authority based on the facts.

This article discusses how individuals can prepare documentation, create a list of issues, and initiate communication for declarations based on publicly verifiable rules effective from October 24, 2026. The focus is on actionable tasks, including identifying income, reconstructing costs, organizing cross-border records, and translating complex transaction flows into business facts understandable by tax authorities.

▌ 1. Confirm Your Taxpayer Status First

Article 1 of the Individual Income Tax Law distinguishes between resident individuals and non-resident individuals. Individuals who have a domicile in China or who do not have a domicile but reside in China for a cumulative total of 183 days or more within a tax year are considered resident individuals; resident individuals are required to pay individual income tax on both domestic and foreign income.

Here, "domicile" has a legal meaning that needs to be assessed in conjunction with habitual residence formed by household registration, family, and economic interests. Therefore, nationality, the location of bank account opening, or holding foreign residency status is often insufficient to complete the analysis of residency status. Individuals working cross-border for extended periods should retain records of entry and exit, employment, and residence.

For individuals without a domicile in mainland China, there are also specific rules and conditions regarding foreign income that need to be analyzed separately. In such cases, one should compile annual residency days, continuity of years, exit situations, and the entities making payments to determine specific obligations. Ordinary mainland residents should verify based on their actual domicile and economic relationships.

The second issue is the source of income. Using foreign platforms or placing assets with foreign wallet service providers does not directly determine the source of income. Different rules apply to wages, services, business income, and property transfers, which need to be analyzed in conjunction with the location of work, transaction facts, and rights relationships.

For example, if a person provides work for a foreign enterprise in mainland China and receives digital assets as compensation, tax authorities will first focus on the employment or service relationship and the facts of the work. Another person disposing of previously purchased assets will need to analyze the transfer behavior and related source rules. Even if two incomes enter the same wallet, the legal analysis will have different focuses.

One can start by creating an annual overview of identity and income, listing residency and work situations, types of income, payers, platforms, and wallets. This overview can help tax advisors quickly identify issues and avoid getting bogged down in thousands of transaction records from the outset.

▌ 2. Process Income Sources Separately

Article 2 of the Individual Income Tax Law lists categories such as wages, service fees, business income, and property transfer income. Digital assets are one form of income acquisition or settlement, and the analysis should return to the legal relationships behind the income.

Compensation received from employment should first verify the labor or employment relationship, wage agreements, and actual payment records. Compensation obtained from independently providing design, development, consulting, and other services needs to be assessed based on the nature of the services and business arrangements. If income is generated from ongoing business organization, personnel, and equipment investment, further evaluation of relevant rules for business income is required.

For assets bought and then sold, the rules for property transfer income are a key area to study. Article 6 of the Individual Income Tax Law states that property transfer income is the balance of transfer income minus the original value of the property and reasonable expenses, while Article 3 specifies a 20% tax rate for such income. Whether specific transactions fall into this category should be confirmed based on facts and applicable standards.

The State Administration of Taxation frequently refers to Guo Shui Han [2008] No. 818. This ruling addresses individuals acquiring virtual currency from players online and then selling it at a markup, and it stipulates taxation based on property transfer income. The original business context in the document needs to be preserved, and judgments regarding assets like Bitcoin should return to current general rules and specific facts, without skipping this analytical process.

Airdrops, staking rewards, lending returns, and incentives issued by different platforms also need to be recorded separately for their acquisition reasons. Whether services were provided, consideration paid, or specific obligations undertaken when acquiring a certain asset will affect the nature of the income. When organizing, one can first categorize based on facts and then submit questionable items to the tax authority for confirmation.

After acquiring assets, subsequent record-keeping issues will arise when they are sold. How wages or service compensation are measured at the acquisition stage and how costs are linked at the time of sale need to have consistent bases. Clearly recording both acquisition and disposal will allow one to explain to the processing personnel how the same economic benefit has been handled at different stages.

Income classification needs to be confirmed based on facts and applicable standards.

▌ 3. Restore Transaction Flows to Real Transactions First

Transaction flows exported from exchanges typically include buying, selling, exchanging, depositing, withdrawing, rewards, fees, and internal transfers. Wallet records may also show contract interactions and multiple intermediate transfers. Before starting calculations, grouping these records can significantly reduce redundancy.

When transferring assets between wallets controlled by oneself, it is essential to match outgoing and incoming records and prove the control relationship at both ends. Platform deposits and withdrawals should also be linked to on-chain records. This way, when reading summary tables, one can distinguish between changes in asset locations and external transactions, avoiding the double counting of transfer amounts as income.

Buying and selling records should retain transaction time, asset type, quantity, transaction price, fees, order numbers, and settlement methods. For currency exchanges, one should also keep records of both parties' asset quantities and the measurement data used at the time, providing a factual basis for subsequent judgments regarding disposal and acquisition stages.

If an individual has operated through multiple accounts, it is necessary to confirm whether the accounts belong to oneself, family members, or other entities. Facts regarding acting on behalf of others for collection, payment, or custody should be explained separately, with corresponding agreements and financial records prepared. Simply calculating personal income based on the total amount credited to a bank card can easily mix in unrelated funds.

A practical approach is to assign internal numbers to the same business. Bank payments, platform purchases, wallet transfers, final sales, and bank receipts should be linked as much as possible in a single record. Marking missing links with reasons and listing supplementary materials that can be obtained alongside will provide a clear basis for subsequent communication.

When dealing with large volumes of data, organizing tools can be used, but original export files and calculation rules should be retained. The basis for identifying certain operations as sales, rewards, or internal transfers needs to be verifiable. Results from automated calculations should be checked before being used for declaration preparation, ensuring greater reliability.

Retain corresponding relationships to avoid internal transfers and intermediate steps being counted multiple times.

▌ 4. How to Prepare Costs and Valuations

Article 16 of the Implementation Regulations of the Individual Income Tax Law addresses the original value of property transfers and reasonable expenses, while Article 17 specifies the taxation methods for property transfer income. If taxpayers do not provide complete and accurate original value documentation, the tax authority will determine the original value. Therefore, cost documentation directly affects the verifiable tax base.

The clearest evidence of purchase is when bank payments correspond to platform transaction records. When acquiring assets through other channels, it is essential to retain transaction agreements, payment proofs, addresses for receiving assets, transaction numbers, and correspondence records that can explain the counterparty and purpose of the transaction.

For example, consider a hypothetical case handled under property transfer income rules: if the transfer income is equivalent to 300,000 RMB, the recognized original value is 200,000 RMB, and reasonable expenses are 10,000 RMB, the taxable income would be 90,000 RMB, resulting in a tax amount of 18,000 RMB at a 20% rate. This result depends on the confirmation of the above classifications and amounts. When preparing materials, one can match each number to transaction records, cost documentation, and expense receipts for the processing personnel to verify item by item.

In cases of multiple purchases and batch sales, the situation becomes more complex. Determining which batch of costs corresponds to which disposal, whether a consistent cost method can be applied, and how to handle losses should all be confirmed in conjunction with applicable rules. Individuals can prepare a corresponding table for each transaction and calculations under different methods, but should avoid applying default tax standards from foreign software.

Transaction fees, platform commissions, and on-chain costs should also be recorded separately. Whether a certain expense directly serves the related transaction, and whether it can be included in the original value or reasonable expenses, needs to be judged based on actual occurrences and applicable regulations. Retaining expense types and corresponding transactions is more helpful than merely providing a total annual expense figure.

In terms of measurement, one should distinguish between asset prices and foreign currency conversions. Article 8 of the Implementation Regulations includes physical goods, securities, and other forms of economic benefits in personal income, specifying corresponding valuation methods; when receiving digital asset compensation, one should retain information regarding the acquisition time, quantity, contractual agreements, and market price data for determining taxable value.

Stablecoins denominated in USD should still have actual transaction prices and fees verified from records. Article 32 of the Implementation Regulations also specifies foreign currency income conversion rules and distinguishes between taxes already paid and those to be paid at the end of the year. The valuation of assets and the exchange rate for foreign currency should be listed separately in the documentation to allow for verification of each calculation step.

When historical records are incomplete, one can first request supplementary exports from the original service provider, then reconstruct based on bank flows, on-chain records, and documents retained at the time. The reconstruction table should indicate which data comes from original records, which is organized based on other materials, and what methods were used, for the tax authority to assess its evidentiary value.

▌ 5. Declaration of Foreign Income and Tax Credits

For income determined to belong to resident individuals' foreign income, the Ministry of Finance and the State Administration of Taxation's Announcement No. 3 of 2020 provides rules for classification calculation, foreign tax credits, and declarations. Article 13 of the Individual Income Tax Law states that resident individuals obtaining foreign income must declare and pay taxes between March 1 and June 30 of the year following the year in which the income was obtained.

When processing, it is necessary to first determine the category of income and then calculate according to the corresponding rules. There are differences in the calculation arrangements for comprehensive income, business income, and property transfer income, and one cannot simply aggregate net receipts from different sources into a single figure for reporting. When there are many items, they can be aggregated by country or region, income category, and year.

Article 7 of the Individual Income Tax Law allows for the credit of individual income tax already paid abroad, but the credit amount is constrained by limits set by Chinese tax law calculations. Announcement No. 3 of 2020 further specifies calculation and documentation requirements. Individuals should retain foreign tax return forms, tax payment receipts, the tax year, and corresponding income information.

Transaction fees and platform service fees deducted by foreign service providers have different natures from foreign income taxes. When preparing credit documentation, it is essential to confirm what type of tax was actually paid, who collected it, and which income it corresponds to. Being able to match tax payments with income item by item facilitates verification of credit limits.

If there is no income tax levied on relevant income abroad, there will be no corresponding tax paid available for credit. Whether a tax obligation is formed in the mainland still needs to be analyzed according to personal identity, nature of income, and source rules. Individuals should keep foreign treatment documents separate from domestic calculations for easier explanation of the differences in handling between the two regions.

In cases of multi-year omitted declarations, it is necessary to first reconstruct the records for each year, then communicate with the competent tax authority to supplement declarations, corrections, and related processing. The specific procedures, tax amounts, and possible additional liabilities need to be judged based on the reasons for the omissions and applicable regulations. Listing all issues and data gaps at once is usually easier to advance than repeatedly submitting incomplete figures.

According to Article 7 of the Individual Income Tax Law and Announcement No. 3 of 2020.

▌ 6. Cross-Border Tax Information Will Be More Complete

The OECD-promoted Crypto Asset Reporting Framework (CARF) aims to enable relevant service providers to collect and report user and transaction information, which will be exchanged by participating jurisdictions according to applicable arrangements. It has a different coverage from the Common Reporting Standard (CRS) for financial accounts, and related systems are being gradually implemented in various regions.

The revised ordinance draft published in Hong Kong on May 22, 2026, proposes to implement CARF and the revised CRS, which is still progressing according to the legislative review schedule. The tax authority explained that, assuming the draft is passed, the CARF-related revisions are intended to be implemented from January 1, 2027, while the revised CRS will be implemented from January 1, 2028. When the platform will collect and exchange specific data still needs to be aligned with the corresponding implementation and exchange arrangements.

For individuals, platforms may further require the provision of tax residency status, taxpayer identification numbers, and relevant proofs. When filling out this information, it should be consistent with the individual's actual situation and updated as required when identity changes occur. Keeping a submitted version also helps explain the platform records for different years.

The scope of information exchange depends on the laws of the participating regions, service provider obligations, and established exchange relationships. Whether and when specific data is transmitted needs to be judged based on these arrangements. The current focus of preparatory work is to ensure that the income and cost records held by the individual are complete and can correspond with the platform data.

This also helps respond to ordinary account and bank inquiries. When banks want to understand the source of funds, individuals can provide relevant contracts, acquisition and disposal records, declaration materials, and account correspondence. Tax preparation and explanations of the source of funds have material overlaps, and organizing in advance can reduce the pressure of finding evidence at the last minute.

▌ 7. How to Clearly Articulate Issues When Consulting Tax Authorities

Before formal communication, it is advisable to prepare a two to three-page factual statement: personal tax identity, transaction year, asset acquisition methods, main transaction processes, income and cost calculations, and situations already handled abroad. Detailed transaction records should be attached, with the main text allowing the processing personnel to understand the business.

The list of questions should focus on the matters that need confirmation. For example, how to classify and measure a certain development service remuneration, whether a certain type of asset disposal is subject to capital gains tax, how to record currency exchanges, how to correspond costs for batch purchases, and what proofs should be supplemented when data is missing.

For the proposed calculation methods, a small sample can be submitted simultaneously. Select several representative transactions, list the original records, conversion processes, and intended results, allowing the competent authority to directly point out areas needing adjustment. After confirmation, the remaining data can be organized according to the same method, which usually saves time.

The results of consultations should record the date, channel, submitted facts, and response content. General policy explanations, handling opinions for specific facts, and formal declaration results should be archived separately. When subsequent facts change, the changed parts should be explained and re-verified to avoid expanding a single response to all transactions.

Handling tax matters should also pay attention to the source of funds and financial regulatory requirements. The restrictions on virtual currency-related businesses in the mainland continue to apply, and tax materials need to accurately reflect transaction and fund situations. For cases involving unusual sources, acting on behalf of others, or other disputes, it should be evaluated and handled properly with professionals.

For those with a long transaction history, the most important tasks to complete first are the annual identity form, income classification table, and itemized voucher directory. These three documents can connect the information scattered across banks, platforms, and wallets, helping tax advisors and competent authorities discuss around the same set of facts, thus providing a clear basis for subsequent declarations, supplementary materials, and corrections.

First, organize representative transactions, then expand to a complete year according to confirmed standards.

This article is intended for legal, policy, and industry research communication, aiming to provide an objective analysis of digital finance, stablecoins, digital assets, and related regulatory dynamics. It does not constitute any form of investment advice, legal opinion, tax opinion, or other professional advice, nor does it constitute a recommendation, promotion, or solicitation of any financial products, digital assets, or commercial projects. The regulatory rules, market data, and institutional information mentioned in this article are primarily sourced from public materials and may be adjusted due to changes in laws, regulations, regulatory policies, market environments, and project developments. Readers are advised to independently judge based on the latest public information and comply with applicable laws and regulations in their respective countries or regions. The author and the publishing platform do not bear any responsibility for any investment, trading, or other business decisions made based on reliance on the content of this article.

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