Recently, some individuals holding offshore accounts, using offshore platforms, or receiving cross-border income have successively received text messages, phone calls, and personal income tax app notifications regarding offshore income, and even formal Tax Matter Notices.
Where virtual currency is also involved, the issues become more complex: exchange records are incomplete, there are many wallet addresses, and coin-to-coin conversions, stablecoin settlements, and OTC withdrawals are mixed together, while domestic bank accounts often show only the final fiat currency remittance.
Some people want to promptly pay supplementary tax based on the amount credited to their bank accounts, while others, concerned that explaining virtual currency transactions may give rise to other risks, choose not to respond. Neither approach is prudent.
The statement in this article that one should "not rush to pay tax based on bank statements" does not mean delaying or refusing to file. The correct sequence is: first respond to the tax authority promptly and confirm the deadline and document requirements; then verify the nature of the income, the year to which it belongs, costs, expenses, and foreign taxes already paid, so as to avoid treating bank statements as directly equivalent to taxable income.
I. First Confirm: What Kind of Reminder You Have Received
General policy notices or app reminders usually require verification of whether offshore income was obtained in a given year. At this point, a self-review should be initiated, and it is inadvisable to casually confirm that "no offshore income was obtained" when the facts are unclear.
Tax officials requesting an explanation by phone or text message may indicate that the tax authority has already obtained some leads regarding offshore accounts, platform income, or bank credits. You should confirm the staff member's identity, the competent tax authority, the year under review, the response deadline, and the list of required documents, and keep a record of the communication process.
A formal Tax Matter Notice usually sets out the risk matters, document requirements, and submission deadline. In publicly available tax documents from 2026, there have already been cases requiring taxpayers to provide "detailed materials on domestic and offshore income and costs," foreign tax payment certificates, payment receipts, or tax records for verification and handling.
After receiving a formal document, one must not adopt an attitude of "setting it aside for now." Refusing to file after being notified by the tax authority to file, or making a false filing that results in underpayment of tax, may escalate an ordinary filing or calculation dispute into a more serious tax administration risk.
Respond first; do not rush to pay tax based on bank statements. The response must be timely, and the tax amount must be calculated accurately.
Statutory deadlines and tax credits should also be understood
According to Announcement No. 3 of 2020 of the Ministry of Finance and the State Taxation Administration, resident individuals obtaining offshore income should generally file and pay tax between March 1 and June 30 of the following year.
Foreign income tax actually paid abroad may, where the relevant requirements are met, be credited against the credit limit. Claiming the credit generally requires foreign tax payment certificates, tax payment receipts or tax records; where such tax payment vouchers genuinely cannot be provided, the foreign tax return or tax payment notice together with bank payment vouchers may be submitted in accordance with the applicable rules.
Accordingly, it is necessary both to pay attention to the deadline set by the tax authority for a response and to verify the statutory filing deadline, the foreign tax payment situation and the credit documentation.
II. Why a bank credit cannot be treated directly as taxable income
In virtual currency transactions, what is shown on-chain is the transfer of assets, whereas what is shown by the bank is fiat currency settlement. Between the two there may be multiple transactions and different legal relationships.
An overseas remittance of RMB 1 million may be service income of RMB 1 million, or it may be the total price for the sale of digital assets, including an original property value of RMB 900,000; it may also be the realisation of digital assets for which income had already been recognised at fair value, in which case only the subsequent appreciation requires separate analysis.
A single remittance may also correspond simultaneously to creator income and investment returns, or may be paid on behalf of the taxpayer by a third-party institution. If the entire credited amount is directly characterised as remuneration for services or income from the transfer of property, errors in the nature of the income, failure to deduct costs, or even double counting may result.
An overseas platform, an overseas payment account or an overseas server is merely a clue for analysis and does not of itself determine the source of income. The source of income should be determined comprehensively in light of the place of performance of services, the entity making and bearing the payment, the place where the property transfer occurs, the transaction arrangements and the actual substance of the business.
Virtual currencies are intangible digital assets, and there is currently a lack of specific, complete publicly available rules for determining the source of income derived from them. Where on-chain transactions, matching by overseas platforms and third-party settlement coexist, the facts, the basis and the uncertainty of the judgment should be explained with particular care.
III. Where virtual currencies are involved, four categories of facts need to be reconstructed
- How the assets were acquired
Settlement in virtual currency does not of itself change the nature of the underlying income. Where development, consulting, design, creative, promotional or other services are provided to an overseas company or platform, the relevant assets may be characterised as wages and salaries, remuneration for services, royalties or business income, and this should be determined in light of the contract, the content of performance and the substance of the business.
Where virtual currency is purchased and then sold at a price difference, there is a possibility that it will be treated as income from the transfer of property. Guoshuihan [2008] No. 818 provides that where an individual acquires virtual currency from players through the internet and resells it at a marked-up price, the income is calculated as income from the transfer of property, with the original value being the acquisition price and related taxes and fees; where original value vouchers cannot be provided, the competent tax authority shall determine the original value.
However, that document predates the birth of Bitcoin, and its original text was directed at 'players' virtual currency.' Whether and how it applies to modern crypto assets still requires reference to the general provisions of the Individual Income Tax Law on 'other property' and to the facts of the individual case; it cannot simply be stated that 'all virtual currency gains are uniformly taxed at 20%.'
For airdrops, staking rewards, DeFi yields and mining income, there is currently a lack of unified, dedicated public rules. Their tax categories should be determined in light of the protocol mechanics, the conditions of acquisition, whether consideration exists, market value and business-substance assessments; there may be room to treat them under different categories of income, and ultimately the case-specific position of the competent tax authority will govern.
- Which wallets and transactions genuinely belong to the individual
A blockchain explorer can display addresses and transactions, but it cannot prove the legal relationships behind an address. An address may belong to an individual, a multisignature wallet, a company, a project team, an exchange or a smart contract, or it may merely be a collection or relay address.
A wallet attribution schedule should be established, explaining address control, signing authority, and the attribution of beneficial interest in assets, as well as whether nominee holding, company assets or joint control exist. Withdrawals from one's own exchange account to a self-custodied wallet, or transfers between wallets controlled by the individual, are usually merely changes in the location of assets and do not automatically constitute new income or a disposal to a third party.
- Whether the original value of the property and the expenses can be proven
Cost reconstruction typically requires exchange orders and fund flow records, fiat currency deposit records, on-chain TxIDs, over-the-counter trading contracts and payment vouchers, crypto-to-crypto exchange records, and information on fees, Gas fees and platform service charges.
Where there are multiple purchases, cross-platform transfers and crypto-to-crypto exchanges, a consistent and verifiable method of cost aggregation must also be adopted. If complete and accurate original-value vouchers cannot be provided, there is a risk that the competent tax authority will assess the original value of the property.
- Whether the contractual flow, asset flow and fund flow can be reconciled
Common discrepancies include: the counterparty to the contract differing from the bank payer; multiple on-chain transactions being consolidated into a single remittance; fees, exchange-rate differences or OTC discounts existing between the disposal amount and the amount credited; and the bank payment reference being inconsistent with the nature of the underlying transaction.
Four evidence lines should be established: the contractual flow explains the reason for payment; the asset flow explains how the digital assets were transferred; the fund flow explains who paid the fiat currency; and the tax flow explains in which year and under what nature the economic benefit was reported. A lack of complete consistency among entities is not inherently problematic, but any discrepancy must be supported by contracts, trade confirmations, payment-on-behalf arrangements, settlement statements or payment explanations.
Holding coins through an offshore trust or an overseas entity requires separate assessment
The new individual income tax rules for offshore trusts released in July 2026 set out dedicated provisions on individuals placing property into offshore trusts, income earned during the term of a trust, and offshore entities controlled or managed by a trust as well as arrangements for their de facto control.
The announcement summarizes property as movable property, immovable property and other categories of property. Where virtual currency is held through an offshore trust or an offshore entity held, controlled or managed by it, the matter cannot be handled merely as an ordinary individual wallet transaction; the tax obligations at each stage, including contribution, existence, distribution, termination and de facto control, should be assessed separately.
Where an individual transfers property through another individual or organization but the property continues to be actually funded, borne or controlled by that individual, there is a possibility that it will be regarded as property contributed by the individual. Where such structures are involved, particular attention should be paid to Announcement No. 21 of 2026 of the Ministry of Finance and the State Taxation Administration and the supporting tax administration provisions.
IV. Upon receiving a reminder, it is recommended to proceed in six steps
Step one: Confirm the authenticity of the reminder and the procedural stage
Verify through the Individual Income Tax App, the Natural Person Electronic Tax Bureau, 12366 or the publicly available contact details of the competent tax authority. Record the year under review, the matter, the deadline, the contact person and the information required.
Step two: First indicate willingness to cooperate with verification, and do not hastily confirm the tax category and amount
You may explain that you are compiling platform records, wallet details and cost evidence, and confirm the submission method and deadline. Do not, before the facts are clear, commit to statements that "all of it constitutes investment income" or "all of it constitutes remuneration for services".
Step three: Prepare a year-by-year schedule of the underlying transaction facts
Set out the date, asset, quantity, transaction type, platform or wallet, counterparty, RMB valuation, cost, expenses and supporting evidence, and distinguish income received in crypto, fiat currency purchases of crypto, crypto-to-crypto exchanges, transfers between one's own wallets, sales for fiat currency and other contractual returns.
Step four: Prepare alternative calculation bases for disputed issues
Separately list the prudent basis that the tax authority may adopt, the basis that the taxpayer considers consistent with the substance of the transactions, and the differences between the two in terms of tax category, year, cost and tax amount. The focus of communication should be the facts and the calculation differences, rather than a general assertion that "no tax is payable".
Step 5: Promptly file supplementary or corrected returns, or confirm through communication
Once the facts and positions are basically clear, supplementary or corrected filings should be made within the required time limit, or the matter should be handled in the manner confirmed through communication. Tax authorities will guide rectification through reminders, urging rectification, and cautionary interviews; refusal to rectify or incomplete rectification may lead to the case-filing inspection and penalty stages.
Step 6: Concurrently assess non-tax risks
Paying taxes in accordance with the law does not mean virtual asset trading has obtained regulatory recognition. Yin Fa [2026] No. 42 reiterates that virtual assets are not legal tender, and that domestic exchange, matching, central counterparty trading, pricing services and other related businesses constitute illegal financial activities, and overseas entities and individuals may not unlawfully provide related services to domestic entities.
Where large-amount OTC transactions, frequent collection and payment on behalf of others, use of others' accounts, assets of unknown origin, high-risk addresses, or bank card freezes are involved, foreign exchange, anti-money laundering, contract validity and criminal risks should be reviewed at the same time.
V. Four common mistakes, especially to avoid
❌ Mistake 1: Directly multiplying the amount credited by the bank by 20%
Bank statements are settlement results and are not equal to taxable income. For income from property transfer, the original value and reasonable expenses still need to be verified, while service income may be subject to different tax calculation methods.
❌ Mistake 2: Characterizing all on-chain inflows as investment income
On-chain inflows may be wages, remuneration for services, project rewards, loans, funds collected on behalf of others, or transfers from one's own wallet. Incorrect characterization will affect the tax rate, the tax year and the subsequent asset cost.
❌ Mistake 3: Believing that paying the tax makes the transaction lawful
Tax obligations and financial regulation are separate determinations. Tax payment does not prove that overseas platform business operations, OTC exchanges, or cross-border fund paths are lawful.
❌ Mistake 4: Failing to respond, or casually promising that there is “no overseas income”
Refusing to file after receiving a formal notice, or making a promise that is clearly inconsistent with objective records, may escalate an ordinary filing and calculation issue into a more serious tax administration risk.
In the following circumstances, it is advisable to seek professional assistance as soon as possible:
The historical years are numerous or platform data is missing; there are records across multiple exchanges, wallets and cross-chain transactions; creator income and investment transactions are commingled; there are frequent crypto-to-crypto conversions, staking, DeFi or airdrops; assets are held through offshore companies, partnerships or trusts; there are offshore OTC transactions and third-party settlement withdrawals; formal tax documents have already been received; and foreign exchange, anti-money laundering, bank card or criminal risks exist at the same time.
Conclusion
After receiving a tax reminder regarding overseas income, the two things one should least do are to pretend not to have seen it, and to hastily pay supplementary tax based on transaction records before the facts have been verified.
The correct order of handling can be summarized as follows:
Respond first, then classify; reconstruct the on-chain facts first, then calculate the income; explain the costs and the fund path first, then supplement or correct the filing in accordance with the law.
A tax reminder is not a message that can be ignored, but it is also not a tax bill that has already been calculated. For Web3 practitioners and investors, what truly matters is not a simple discussion of “whether to pay supplementary tax,” but what to supplement, which year to supplement, under what nature to supplement, and whether evidence can support that calculation.
Disclaimer: This article discusses general issues under the current tax laws and regulatory rules of mainland China. “Do not rush to pay supplementary tax based on transaction records” only means that, on the premise of responding in accordance with the law and complying with the requirements of the tax authorities, the transaction facts and the tax basis should first be verified; it does not mean delaying, refusing to file, or evading tax. This article does not correspond to any specific client or transaction and does not constitute legal or tax advice for any individual case.
