The General Administration of Taxation and its local offices in China have required all participants in the cryptocurrency industry, including exchanges and private/corporate investors, to provide full documentation of all digital asset transactions from early 2022.
Officials said this financial audit is necessary to identify any tax evasion by individuals for their crypto-asset transactions. The income tax rate on income from transfers using digital assets for Chinese individuals is 20%.
The government has established strict rules for digital currency-related activities, including trading in virtual assets. However, tax authorities are confident that such virtual currency exchange practices will not disappear quickly, the rules having only recently been introduced.
According to current Chinese law, people are allowed to own cryptocurrencies, but trading in digital currencies is classified as an "invalid civil act" but not prohibited by law.
This suggests that services provided by foreign exchanges may be considered "not directly prohibited by law", although PRC residents must pay taxes, such as VAT and income tax, as well as other fees and duties.
Earlier, China revealed plans for a Universal Digital Payments Network (UDPN), which is designed to make payments using stablecoins or CBDCs and could be seen as a replacement for SWIFT, the interbank financial communications system.