Analysis of Global Cryptocurrency Tax Compliance Hotspots

Recently, the global regulatory compliance of encryption assets has continued to heat up. Countries are strengthening the tax information exchange and tracking of on-chain assets, overseas accounts, and cross-border transactions. This article will discuss hot topics such as global tax compliance for encryption assets, tax arrangements, and regulatory games, and will explore the tax logic in various scenarios such as exchange compliance, DeFi, mining, and airdrops, combined with real cases.

Tax Challenges of Cross-Border Income

For Web3 practitioners, the issue of taxation on cross-border income often exceeds the scope that the traditional tax framework can fully cover. Web3 projects are inherently transnational and transregional, making it difficult to accurately attribute income to a specific location. Economic activities are closely related to both the source of customers and the platforms, networks, and infrastructure used.

The evolution speed of the global tax regulatory system is indeed difficult to keep up with the pace of technological and industry developments. Regulation has been trying to catch up, but industry changes and technological innovations are always ahead. This state of being "chased" may exist for a long time, with a dynamic balance always between regulation and industry.

Tax Supplement Cases for Individual Cryptocurrency Traders in Mainland China

Recently, there have been reports that the Zhejiang Tax Bureau required an individual to pay back taxes due to cryptocurrency trading. Such cases are not surprising and are quite representative. With the advancement of CRS information exchange, tax authorities are intensifying their efforts to track individuals' overseas income.

Encryption assets and the stock market have become highly interconnected. As this trend continues to develop, the tax issues related to trading cryptocurrencies will inevitably become more rigid, and the space for evasion will become smaller. This also reminds everyone that cryptocurrency taxation is a new issue that requires long-term attention.

The Long-Term Game of Regulation and Tax Evasion

Regulation and "anti-regulation" have always existed, which is not only a characteristic of the cryptocurrency industry but also of traditional industries. From a trend perspective, the early "wild" stage had low emphasis on compliance, but as we move to the present day, more large institutions are placing compliance as a top priority.

For retail investors or employees of Web3 projects, compliance largely depends on the actual amount involved. Law enforcement must also consider the cost-benefit ratio, unless there are some typical cases with "demonstrative significance".

Overall, large institutions will increasingly value Compliance, as it is a prerequisite for sustainable operations; whereas individual customers, similar to the real world, are fundamentally still directly related to the amount of money involved.

The Boundaries Between Improper Income and Asset Compliance

Whether or not to pay taxes can at most prove that tax obligations have been fulfilled, but it cannot fundamentally prove that the funds are legal in a broader sense. If a sum of money itself also violates other financial regulatory laws, even if the taxes are paid, it does not affect the penalties and tracing by other regulatory agencies regarding the source of these funds.

Tax compliance and the legality of funds are two distinct aspects legally and cannot simply be equated. One must first acknowledge that an asset is legal before discussing taxation.

Tax Planning Space in the Cryptocurrency Industry for Enterprises and Individuals

For most ordinary people, the space for tax planning is actually very limited. The main reason is that ordinary people's sources of income are relatively singular, mainly consisting of salaries, bonuses, or some small allowances, all of which are fully recorded by the company. Once the enterprise reports truthfully, it is difficult for individuals to have any additional "optimization" opportunities.

However, the situation is different for high-net-worth individuals or enterprises. Their income patterns and structures are usually more complex, with diverse sources and larger transaction scales, along with more cross-border tax-related matters. This diversity and complexity inherently bring more operational space.

Potential Tax Obligations and Optimization Opportunities for Mining, Airdrops, DeFi, and Other Earnings

The cryptocurrency world has provided many middle-class and ordinary people with a more diversified income channel, such as mining, airdrops, staking, and DeFi yields. These new forms of income have brought new complexities.

Mining is generally regarded as business income in most regions; airdrops that are simply received but not disposed of usually do not trigger tax obligations temporarily; staking or DeFi earnings can be considered capital gains in some jurisdictions.

Essentially, it is unrealistic for ordinary people to engage in large-scale tax planning because all income is under their personal names, making it easy to be classified as business income or a high tax burden category. Relatively speaking, activities like airdrops and forks, if permitted by local policies, may be treated as low tax burden or deferred.

Real Considerations for Digital Nomad Identity Planning

Cross-border identity planning is a strategy to reasonably utilize different tax jurisdictions to reduce overall tax burden. However, in any case, the information and records must be complete, and what needs to be declared must be declared truthfully.

From the perspective of mainland tax law, whether an individual constitutes a tax resident is primarily based on the "183 days" rule. However, in more detailed regulations and practical applications, factors such as nationality, household registration, and primary social relationships will also be considered. If these connections are all within the country, an individual may still be regarded as a Chinese tax resident even if they are overseas.

Vision for the Future of Encryption Taxation

In the future, a two-tier tax model may emerge:

1. Infrastructure providers (miners, nodes) pay taxes to the physical world;
2. Individual users indirectly pay fees to the network through Gas fees and other forms, which the network then feeds back into the real-world tax system.

As the proportion of human digital spending continues to increase in the future, the direct tax burden in the physical world will gradually decrease, while the blockchain network will resemble a self-governing micro tax system, bearing the corresponding real obligations through the Gas mechanism and distribution structure.

With the development of the encryption industry, it may carry an increasingly large asset volume in the future, and the deep integration with traditional finance will accelerate. In the future, it may replace some of the inefficient and opaque parts of traditional finance, which will inevitably require matching new legal systems and regulatory frameworks.