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With the development of Web3 and cryptocurrency, more and more investors and practitioners are beginning to face an important question: Is Web3 income subject to tax?This is a complex legal issue involving factors such as tax regulations in different jurisdictions, the nature of the income and the sharing of international tax information.This article combines the main provisions of China’s tax laws and the specific business conditions of Web3 to briefly review the relevant tax obligations.
1. Web3 income and China’s tax regulations
In China, individuals’ overseas income must be actively taxed. This is an unquestionable conclusion.On the one hand, our country has established a relatively complete legal system for taxing overseas income. On the other hand, the in-depth development of the international tax information sharing mechanism has also made the overseas income of individual residents invisible.Since 1998, China has gradually clarified the taxation rules for residents’ overseas income. Based on the “Interim Measures for the Collection and Administration of Personal Income Tax on Overseas Income”, China has gradually formed a complete overseas income tax collection system.In 2020, the State Administration of Taxation issued Announcement No. 3, further detailing the scope and collection and management methods of overseas income.In 2025, the State Administration of Taxation once again emphasized that overseas income must be reported truthfully in accordance with the law by issuing the “Administrative Measures for the Settlement and Settlement of Comprehensive Income of Personal Income Tax” and strengthened the monitoring of overseas income, especially the tracking of cryptocurrency and Web3-related income.With the application of tax big data and intelligent technology, tax authorities can more accurately identify which overseas income has not been declared.
From the perspective of international tax information sharing, in 2014 the OECD launched the automatic exchange standard for financial account tax-related information, namely AEOI and CRS.AEOI addresses how tax authorities exchange information, while CRS addresses how financial institutions collect and submit this information.China committed to join in 2014 and began to formally exchange non-resident financial account information with the outside world in 2018.According to the requirements of CRS, the Chinese tax authorities can now obtain various key information held by Chinese residents in overseas financial institutions: including names, addresses, taxpayer identification numbers, account balances, interest, dividends, income from asset transfers, etc., and the scope of entities is very wide – banks, securities firms, insurances, and trusts are all included.At present, China has implemented regular automatic exchanges with more than 100 countries and regions, including major financial centers such as the United Kingdom, Singapore, and Switzerland. This provides a very critical data basis for tax supervision and can more accurately identify overseas income that has not been declared in accordance with the law.
2. Tax identification and tax treatment of different Web3 income
(1) Identification of tax identity
The key point in China’s tax law to determine whether it is necessary to declare overseas income is whether it constitutes a tax resident.According to the “Individual Income Tax Law Implementation Regulations”, as long as a person is a Chinese tax resident, all his income, including overseas wages, labor income, investment income, etc., must be declared and paid tax in accordance with the law.This means that whether Web3 income comes from wages from overseas projects, or interest or liquidity mining rewards obtained through the DeFi platform, tax issues may be involved.
“Chinese tax residents” need to consider the “residence” standard and the “number of days of residence” standard:
1.Have a residence within the territory: Refers to individuals who have habitually resided in China due to household registration, family, and economic interests. Even if they work or live abroad for a long time, they may still be recognized as residents as long as they have not given up their household registration or family ties.
2.Lived in the country for 183 days or more: Individuals who live in the country for a total of 183 days in a tax year (January 1st to December 31st) are considered residents even if they have no residence.
For the vast majority of Chinese citizens who have lived and worked in China for a long time, they are in principle resident individuals and need to fulfill tax obligations in China on their global income (including overseas income).
(2) Handling of different web3 income
Web3’s income itself comes in various forms, but since China’s tax law does not establish separate tax categories for crypto-assets, it is necessary to find a corresponding classification in the current tax system based on the “nature of income”.Web3 income can be broken down into several main types, each of which is tax treated differently:
1.salary income: If someone plays a role in development, management, etc. in an overseas Web3 project and receives USDT or tokens as salary through an on-chain address, this type of income is usually regarded as “wage and salary income” in China and needs to be reported according to personal income tax.If the project party has withheld part of the tax, there may also be a credit issue involved.
2.DeFi earnings: Interest income, liquidity mining rewards, etc. in the DeFi protocol may be regarded as “operating income” or “other income”.If participants frequently adjust their strategies or engage in arbitrage operations, this situation may be deemed to be income of a more operating nature and the tax treatment will be different accordingly.
3.Airdrop tokens: The airdrop tokens issued by DAO projects to contributors are usually considered “accidental income” or “other income”.The market liquidity and value of these tokens fluctuate greatly, and tax authorities usually calculate taxable income based on the market value of the tokens when they arrive.
3. How to respond: Tax preparation for Web3 income
For Web3 practitioners, actively responding to tax issues and making tax planning in advance are the keys to avoiding future risks.First, ensure the integrity of income reporting, especially in cryptocurrency and Web3 projects, where the nature and value of income are highly volatile and each transaction needs to be recorded promptly as it occurs.Second, learn how to calculate and declare different types of income, especially how to handle token lock-up periods, exchange rates, and accounting for losses.Finally, maintain communication with tax experts to ensure that tax questions are answered professionally and to avoid unnecessary tax risks due to incomplete information or misunderstanding of tax policies.
Conclusion
As the global tax regulatory environment changes, the tax responsibilities of Web3 practitioners and investors have gradually become clearer.While the tax treatment of crypto-assets and Web3 income may vary across countries and regions, it cannot be ignored that the global trend toward tax transparency makes it easier to track these incomes.Therefore, Web3 practitioners should actively prepare, understand and respond to tax changes in a timely manner, proactively seek professional tax services, and avoid future tax risks with substantial compliance work.
