Does Web3 Income Need to Be Taxed in China?

With the development of Web3 and cryptocurrencies, more and more investors and practitioners are facing an important question: Does Web3 income need to be taxed? This is a complex legal issue, involving tax regulations in different regions, the nature of the income, and international tax information sharing, among other factors.

This article provides a brief overview of the relevant tax obligations based on the main provisions of Chinese tax law and the specific business scenarios of Web3.

I. Web3 Income and China's Tax Regulations

In China, individuals must proactively pay taxes on overseas income—this is an indisputable conclusion.

On one hand, China has established a relatively complete legal system for taxing overseas income. On the other hand, the deepening development of international tax information sharing mechanisms has made residents' overseas income more transparent. Since 1998, China has gradually clarified the rules for taxing residents’ overseas income, forming a comprehensive taxation system based on the “Provisional Measures for the Administration of Individual Income Tax Collection on Overseas Income.”

In 2020, the State Taxation Administration issued Announcement No. 3, further detailing the scope and management of overseas income. By 2025, with the release of the “Measures for the Administration of Comprehensive Individual Income Tax Settlement,” the State Taxation Administration again emphasized the legal requirement to truthfully declare overseas income and strengthened the monitoring of such income, especially for cryptocurrency and Web3-related earnings. With the application of tax big data and intelligent technologies, tax authorities can more accurately identify undeclared overseas income.

From the perspective of international tax information sharing, the OECD introduced the Automatic Exchange of Information (AEOI) and Common Reporting Standard (CRS) in 2014. AEOI addresses how tax authorities exchange information, while CRS specifies how financial institutions collect and report this information. China committed to joining in 2014 and began officially exchanging non-resident financial account information internationally in 2018.

According to CRS requirements, Chinese tax authorities can now access key information held by Chinese residents in overseas financial institutions, including names, addresses, taxpayer identification numbers, account balances, interest, dividends, capital gains, and more. The scope is very broad—banks, brokerages, insurance companies, and trusts are all covered.

Currently, China has achieved regular automatic exchange with over 100 countries and regions, including major financial centers such as the United Kingdom, Singapore, and Switzerland. This provides a critical data foundation for tax supervision, enabling more precise identification of undeclared overseas income.

II. Identification of Tax Residency and Tax Treatment of Different Web3 Income Types

A. Identification of Tax Residency

The key to determining whether overseas income must be declared under Chinese tax law is whether the individual qualifies as a tax resident. According to the “Implementation Regulations of the Individual Income Tax Law,” as long as a person is a Chinese tax resident, all income—including overseas wages, labor income, and investment returns—must be declared and taxed according to the law.

This means that regardless of whether Web3 income comes from overseas project wages or interest and liquidity mining rewards earned through DeFi platforms, tax obligations may be involved. The determination of “Chinese tax resident” involves both “domicile” and “days of residence” standards:

1. Domicile in China: Refers to individuals who habitually reside in China due to household registration, family, or economic interests. Even if they work or live abroad for long periods, as long as they have not given up their household registration or family ties, they may still be considered residents.

2. Residing in China for 183 days: Individuals who reside in China for a total of 183 days or more in a tax year (January 1 to December 31) are also deemed residents, even if they have no domicile. For the vast majority of Chinese citizens who live and work in China long-term, they are generally classified as residents and must fulfill tax obligations for worldwide income (including overseas income) in China.

B. Treatment of Different Web3 Income Types

Web3 income takes various forms, but since Chinese tax law does not have a separate tax category for crypto assets, it is necessary to classify the income according to its nature within the current tax system.

Web3 income can be divided into several main types, each with different tax treatments:

1. Wage Income: If an individual serves as a developer, manager, etc., in an overseas Web3 project and receives USDT or tokens as wages via on-chain addresses, this income is generally considered “wage and salary income” in China and must be declared for individual income tax. If the project party has already withheld part of the taxes, there may also be an offsetting issue.

2. DeFi Earnings: Interest income, liquidity mining rewards, etc., from DeFi protocols may be regarded as “business income” or “other income.” If the participant frequently adjusts strategies or engages in arbitrage, such income may be deemed more business in nature, with corresponding tax treatment.

3. Airdropped Tokens: Tokens airdropped by DAO projects to contributors are usually considered “occasional income” or “other income.” Given the significant volatility and liquidity of such tokens, tax authorities typically calculate the taxable amount based on the market value at the time of receipt.

III. How to Respond: Tax Preparation for Web3 Income

For Web3 practitioners, proactively addressing tax issues and planning ahead is key to avoiding future risks. First, ensure the completeness of income declaration—especially in crypto and Web3 projects, where the nature and value of income can be highly volatile, it is necessary to record each transaction in a timely manner.

Second, understand how to calculate and declare different types of income, particularly how to handle issues such as token vesting periods, exchange rates, and loss accounting. Finally, maintain communication with tax professionals to ensure tax issues are handled professionally and avoid unnecessary tax risks due to incomplete information or misinterpretation of tax policies.

Conclusion

With changes in the global tax regulatory environment, the tax responsibilities of Web3 practitioners and investors are becoming increasingly clear. While the tax treatment of crypto assets and Web3 income may vary across countries and regions, the global trend toward tax transparency makes it easier to track these earnings. Therefore, Web3 practitioners should actively prepare, keep up to date with tax changes, and proactively seek professional tax services to ensure robust compliance and avoid future tax risks.