Recently, some individuals who hold offshore accounts, use offshore platforms, or receive cross-border income have successively received text messages, phone calls, and personal income tax App notifications relating to offshore income, and even formal Tax Matter Notices.

If the income also involves virtual currency, verification and reporting become more complex: exchange records may be incomplete, there may be numerous wallet addresses, and coin-to-coin conversions, stablecoin settlements, and OTC withdrawals are intertwined, while bank accounts often show only the final fiat currency credits.

Some people want to pay supplementary tax as soon as possible based on the amounts credited to their bank accounts, while others, worried that disclosing virtual currency transactions will give rise to other risks, choose not to respond. Both approaches may create problems.

After receiving a reminder, the correct order is:first respond promptly, then verify the nature of the income, the year to which it belongs,the original cost of the property, reasonable expenses, and taxes already paid overseas, and finally determine the reporting and supplementary tax plan in accordance with the law。

The statement "do not pay supplementary tax based on bank statements" here does not mean delaying reporting or refusing to pay tax; rather, it means avoiding treating bank statements directly as taxable income before the facts of the transactions have been clarified.

I. First confirm: what kind of tax reminder have you received?

Different forms of reminders may correspond to different stages of handling. First, verifythe source of the information, the specific matter, and the deadline for handling, rather than judging solely on the basis of a text message or phone call whether you already have an issue of underpaid tax.

Individual Income Tax App orGeneral notice

After receiving the notice, a self-review of foreign-source income for the relevant year should be initiated, verifying income sources, filing records and tax payment status.

At this stage, it is inadvisable to directly confirm that there is "no foreign-source income" before the facts have been clarified, nor is it necessary to conclude solely on the basis of one reminder that additional tax must certainly be paid.

Tax officials request an explanation of the situation by telephone or text message

The identity of the staff member and the competent tax authority should be verified through official channels, and the tax year(s) involved, matters to be examined, deadline for response and required materials should be confirmed.

During communications, it is advisable to retain notices, records of material submissions and written replies, so as to avoid problems in subsequent handling arising from misunderstandings.

Formal Tax Matter Notice

Focus should be placed on thematters, legal basis, list of materials and submission deadlinestated in the document, and handling should be carried out as required.

If transaction records, details of domestic and foreign income and costs, foreign tax payment certificates or other tax materials do indeed need to be supplemented, preparation should begin as early as possible. For disputed characterizations of income or tax calculation bases, reasons and supporting grounds should also be explained within the deadline rather than left unaddressed.

It should be noted that a tax reminder does not mean the tax amount has been determined, but once a formal document is received, it cannot be treated as an ordinary informational notice either.

Statutory filing deadline and foreign tax credit

According to the Announcement of the Ministry of Finance and the State Taxation Administration on Individual Income Tax Policies Concerning Foreign-Source Income (Ministry of Finance and State Taxation Administration Announcement No. 3 of 2020), a resident individual who obtains foreign-source income shall generally, withinMarch 1 to June 30 of the year following the year in which the income is obtained,file and pay tax.

Income tax actually paid abroad by a resident individual may, where it meets the relevant requirements, be credited against the corresponding tax payable within China up to the credit limit. Claiming the credit generally requires the provision of foreign tax payment certificates, tax payment receipts or tax records; where such supporting documents genuinely cannot be provided, the foreign-source income tax return or tax payment notice, together with the corresponding bank payment vouchers, may be submitted in accordance with the relevant rules.

Therefore, when handling a tax reminder, attention must be paid simultaneously tothree time points: the deadline set by the tax authority for a reply or for submission of materials, the statutory filing deadline, and the time at which the foreign tax payment certificates are obtained.The three must not be conflated.

II. Why can bank credits not be treated directly as taxable income?

In virtual currency transactions, on-chain records reflect asset transfers, while bank statements reflect fiat currency settlement. Between the two there may be multiple transactions, different entities and different legal relationships.

For example, an overseas remittance may be income from the provision of services, or it may be transaction proceeds from the sale of digital assets, which include the cost of previously acquired assets; it may also be the subsequent realization of digital assets for which income has already been recognized in another link, and further analysis is required to determine whether new taxable income arises.

If the entire credited amount is directly characterized as remuneration for services or income from the transfer of property, errors in characterizing the nature of the income, failure to take into account the original value of the property, orthe same economic benefit being counted twicemay arise.

It should also be noted that an overseas platform, an overseas payment account or an overseas server doesnot automatically determinethat the income is income sourced outside China.

Under the relevant rules on overseas income, the source of income must be determined in light of the specific type of income. For example, for service income, attention must be paid to the place where the services are actually performed; for income from the transfer of property, analysis must be made in light of the nature and location of the transferred property and the specific transaction arrangements. It cannot be directly determined that all income is overseas income merely because the payment account is located overseas.

For virtual assets, on-chain transactions, matching by overseas platforms and third-party settlement may exist at the same time, and the source of the income, the time of acquisition and the tax basis still need to be analyzed in light of existing tax law provisions and the specific facts.

Therefore, the focus of tax accounting is not simply to aggregate bank statements, but to answer three questions:

• What is the nature of the income represented by this economic benefit?

• To which tax year should it be attributed, and what tax calculation rules apply?

• Which costs, expenses and foreign taxes already paid may be deducted or credited in accordance with the law?

III. Where virtual currency is involved, four categories of facts need to be reconstructed

  1. How were the assets acquired?

Settlement in virtual currency does not of itself change the nature of the underlying income.

For example, where digital assets are obtained by providing development, consulting, design, creative, promotional or other services to an overseas enterprise or platform, the contractual relationship, the content of performance and the substance of the business should be considered in determining whether the income may fall within different categories such as wages and salaries, remuneration for personal services, royalties or business income.

If the income is derived from the price difference on a sale after purchase, further analysis is required to determine whether it involves income from the transfer of property.

The Official Reply of the State Administration of Taxation on the Issue of Levying Individual Income Tax on Income Obtained by Individuals from Buying and Selling Virtual Currency Through the Internet (Guoshuihan [2008] No. 818) provides that income obtained by an individual from purchasing virtual currency from players through the Internet and selling it to others at a marked-up price shall be calculated asincome from the transfer of propertyfor individual income tax purposes, and sets out rules on the original value of the property and on deemed assessment where supporting vouchers are insufficient.

However, that document addresses a specific online virtual currency transaction scenario,and it cannot be directly relied upon to conclude that all modern crypto asset transactions are subject to the same tax category or a uniform tax rateHow it applies specifically still needs to be determined in light of the general provisions of the current tax law and the facts of each individual case.

For airdrops, staking rewards, DeFi yields and similar arrangements, an analysis should also be made of the conditions for acquiring the assets, whether consideration exists, the economic benefits at the time of acquisition, and subsequent disposal. At present, the individual income tax treatment of returns from various types of crypto asset protocols still lacks unified, dedicated rules covering all scenarios.

The fact that the rules remain unclear does not mean the income is necessarily tax-exempt; likewise, all returns cannot, in the absence of a basis, be categorically assigned to a single tax category.

  1. Which wallets and transactions genuinely belong to the individual?

A blockchain explorer can display addresses and transaction records, but it cannotestablish the legal ownership of assets on the basis of an address alone。

A wallet may belong to an individual, a company, a project team, an exchange, a multi-signature entity or a smart contract, and may also serve collection, custody or intermediary functions.

Accordingly, a wallet ownership schedule should be established, stating at a minimum:

• who controls the address and who holds signing authority;

• who ultimately enjoys the wallet assets;

• Whether there is any nominee holding, company assets, or joint control;

• whether transfers between different addresses are transfers of one's own assets, or external payments or disposals of assets.

Withdrawals from one's own exchange account to a self-custodied wallet, or transfers between wallets controlled by the individual, are usuallyA new taxable income cannot be determined merely on the basis of transfer records.However, the determination should still be made in light of the preceding and subsequent transactions, asset ownership and the specific legal relationships.

  1. Can the original value of the property and the expenses be proven?

Cost reconstruction is often one of the most complex aspects of tax-related verification involving virtual currencies.

It is advisable to organize the following materials as far as possible:

• Exchange orders, trade records and account statements;

• Fiat currency deposit records and proof of coin purchases;

• On-chain transaction hashes (TxIDs) and wallet transfer records;

• Records of coin-to-coin exchanges and cross-platform transfers;

• OTC transaction contracts, transaction confirmations and payment vouchers;

• Vouchers for fees, Gas fees and other related expenses.

For multiple purchases, cross-platform transfers and coin-to-coin exchanges, a reviewable cost aggregation statement should be prepared, recording the calculation method adopted, the basis therefor and the parts that cannot be confirmed; it is not advisable to directly assume that a particular cost calculation method will necessarily be accepted by the tax authorities.

If complete and accurate evidence of the original cost of the property cannot be provided, there is a risk that the competent tax authority mayassess the original cost of the property on a deemed basisrisks.

  1. Do the contract flow, asset flow and fund flow correspond to one another?

Common issues include: the counterparty to the contract is inconsistent with the bank payer; multiple on-chain transactions are consolidated into a single fiat remittance; differences arise between the disposal amount of the digital assets and the final amount credited due to fees, exchange rates or OTC discounts; and the bank payment reference is inconsistent with the nature of the underlying transaction.

It is advisable to establish four lines of evidence:

• contract flow: identifying the parties to the transaction, the reason for the transaction and the rights and obligations;

• asset flow: explaining how the digital assets were acquired, transferred and disposed of;

• fund flow: explaining who paid the fiat currency, where it flowed, and how the settlement amount was determined;

• Tax treatment: explain which tax year the economic benefits are attributable to, which categories of income may apply, and how the amount to be reported and paid is calculated.

The four evidence lines need not be entirely consistent at every stage, but where there are discrepancies in the parties, amounts or timing, a reasonable explanation should be capable of being provided through contracts, transaction confirmations, payment-on-behalf arrangements, settlement statements or payment explanations.

Special note: holding digital assets through offshore trusts or offshore entities

The Announcement of the Ministry of Finance and the State Taxation Administration on Matters Concerning Individual Income Tax on Offshore Trusts (Ministry of Finance and State Taxation Administration Announcement No. 21 of 2026), issued in July 2026, sets out dedicated provisions on matters such as individuals placing property into offshore trusts, income during the existence of the trust, and related transfers of property.

The Announcement summarizes the relevant property as movable property, immovable property and other categories of property, and sets out provisions on individuals transferring property to offshore trusts or to offshore entities held, controlled or managed by them. Related supporting tax administration matters are separately set out in State Taxation Administration Announcement No. 15 of 2026.

Where virtual currency is held through an offshore trust or an offshore entity controlled or managed by it,the analysis approach used for ordinary individual wallet transactions cannot simply be carried over, and further verification should instead be carried out in respect of stages such as the contribution of property, income during the existence of the trust, transfers of property and termination of the trust.

Whether a tax liability arises, and how the original cost and market value of the property are determined, require judgment based on the specific structure, control relationships and applicable rules. Individuals involved in such structures are advised to carry out a separate tax assessment.

IV. After receiving a reminder, it is recommended to proceed in six steps

Step one: verify 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 official contact channels of the competent tax authority.

Confirm the year under review, the matters involved, the submission deadline, the contact person, and the documentation requirements, and retain the relevant records.

Step Two: Respond and cooperate with the verification first; do not hastily confirm tax categories and amounts

You may explain that you are compiling platform records, wallet details, and cost vouchers, and confirm the list of materials, the submission method, and the deadline with the tax authority.

While the facts have not yet been clarified, it is inadvisable to directly commit to statements such as "all of it constitutes investment income" or "all of it constitutes remuneration for services," nor should you directly deny the receipt of overseas income in the absence of a basis.

Step Three: Prepare a transaction fact schedule by year

It is recommended to set out at least the date, asset type, transaction quantity, transaction type, platform or wallet, counterparty, RMB valuation, original value of the property, related expenses, and corresponding vouchers.

Focus on distinguishing income obtained through digital assets, fiat currency purchases of coins, coin-to-coin exchanges, transfers between one's own wallets, sales for fiat currency, and other protocol income such as staking and airdrops.

For transactions that cannot be confirmed for the time being, they should be marked separately rather than directly presumed in order to complete the schedule.

Step Four: For disputed issues, prepare different calculation bases

If there is a dispute over the nature of the income, the place of source, the tax year, or the determination of costs, set out separately:

• Transaction facts that can already be confirmed;

• The legal basis for different characterization methods;

• Differences in taxable income and tax amounts under different calculation approaches;

• Evidence still lacking and issues requiring further verification.

The focus of communication should bethe facts, evidence and calculation differences, rather than a general assertion that "no tax is payable."

Step Five: Promptly file returns, make corrections or submit supplementary materials

Once the facts and applicable calculation approach are basically clear, supplementary filings, corrected filings, payment of outstanding tax or submission of explanatory materials should be handled according to the actual situation, and the deadlines required by the tax authorities must be observed.

If it is genuinely impossible to complete the organization of materials within the deadline, communicate as early as possible and explain the reasons, and where necessary make reasonable requests for extension or other procedural requests, while retaining relevant records.

Whether further examination or penalties will follow, and how the matter will be handled, should be determined based on the specific facts, legal basis and procedures, and cannot be generalized.

Step Six: Concurrently assess non-tax risks

Paying taxes in accordance with the law does not mean that the relevant virtual asset transactions or fund flows have obtained regulatory recognition.

The notice issued by the People's Bank of China and seven other departments (Yinfa [2026] No. 42) makes clear that conducting, within China, exchange between legal tender and virtual currency, exchange between virtual currencies, buying and selling virtual currency as a central counterparty, and providing information intermediation and pricing services for virtual currency transactions, and other related business activities, constitutes strictly prohibitedillegal financial activitiesOverseas entities and individuals may not, in any form, unlawfully provide virtual currency-related services to entities within China.

Therefore, in circumstances involving large-value OTC transactions, frequent collection and payment on behalf of others, use of others' accounts, high-risk addresses, or bank card freezes, in addition to tax issues, an assessment should also be made, based on the transaction role, source of funds and specific pathways, offoreign exchange, anti-money laundering, civil and criminal risks。

V. Four common errors, which should especially be avoided

Error one: directly multiplying the amount credited by the bank by 20%

Bank statements reflect the results of fund settlement,and are not equivalent to taxable incomeIncome from transfer of property requires verification of the original value of the property and related expenses, while service income may be subject to different tax calculation rules.

Error two: describing all on-chain inflows as investment income

On-chain inflows may correspond to service income, project rewards, loans, funds collected on behalf of others, or transfers from one's own wallet. Incorrect characterization may affect the category of income, the tax year, the cost basis, and the tax treatment of subsequent transactions.

Mistake 3: Believing that paying the supplementary tax makes the transaction lawful

Tax obligations and financial regulation are distinct dimensions of assessment. Completing tax filingsdoes not prove thatthe overseas platform's conduct of business, OTC exchange, or cross-border fund pathways are necessarily compliant.

Mistake 4: Not responding, or casually undertaking that there is "no overseas income"

Ignoring formal tax documents, or making statements that are clearly inconsistent with objective records, may increase subsequent tax administration risks. As to facts that cannot be confirmed, they should be truthfully explained and further verified, rather than hastily reaching a conclusion.

If any of the following circumstances exist, it is advisable to seek professional legal or tax assistance as soon as possible:

• The historical years are relatively long and platform records are missing;

• Multiple exchanges, wallets, and cross-chain records are involved;

• Service income and investment transactions are commingled;

• There are frequent crypto-to-crypto exchanges, staking, or DeFi yields;

• Digital assets are held through overseas companies, partnerships, or trusts;

• Involves OTC and third-party settlement withdrawals;

• Formal tax documents have already been received;

• Or foreign exchange, anti-money laundering, bank card freeze and criminal risks exist simultaneously.

Conclusion

Upon 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 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 transaction facts first, then calculate the income; verify the costs and fund paths first, then file or correct the declaration in accordance with the law.

A tax reminder is not a message that can be ignored, but it does not mean the tax amount has been determined. For Web3 practitioners and investors, what truly needs to be resolved is not merely "whether to pay the tax," butwhat to pay, which year to pay for, and on what basis the amount is calculated, as well as whether complete and verifiable evidence can support that calculation.

Principal Regulatory Basis

  1. Individual Income Tax Law of the People's Republic of China;
  2. Implementation Regulations of the Individual Income Tax Law of the People's Republic of China;
  3. Tax Collection and Administration Law of the People's Republic of China;
  4. Announcement of the Ministry of Finance and the State Taxation Administration on Individual Income Tax Policies Concerning Overseas Income (Ministry of Finance and State Taxation Administration Announcement No. 3 of 2020);
  5. Official Reply of the State Taxation Administration on Issues Concerning the Levying of Individual Income Tax on Income Derived by Individuals from the Buying and Selling of Virtual Currency Through the Internet (Guoshuihan [2008] No. 818);
  6. Notice of the People's Bank of China and Seven Other Departments on Further Preventing and Addressing Risks Relating to Virtual Currency and Related Matters (Yinfa [2026] No. 42);
  7. Announcement of the Ministry of Finance and the State Taxation Administration on Matters Concerning Individual Income Tax on Offshore Trusts (Ministry of Finance and State Taxation Administration Announcement No. 21 of 2026);
  8. Announcement of the State Taxation Administration on Matters Concerning the Administration and Collection of Individual Income Tax on Offshore Trusts (State Taxation Administration Announcement No. 15 of 2026);
  9. Overseas income reporting reminders and related tax administration and collection materials publicly issued by local tax authorities.