Do virtual money transactions in China need to be taxed?

Recently, there have been reports that a person with the surname Chen from Zhejiang has been pursued for personal income tax and late fees totaling 127,200 yuan due to unreported profits from Virtual Money trading. The official website of a provincial tax bureau did indeed publish a related notice, but it did not explicitly state whether it involved Virtual Money trading.

As a lawyer with a long-term focus on the web3 field, I believe that there are currently no clear policies on taxing Virtual Money in the country. First, it is necessary to confirm whether this case indeed involves coin transactions, as the official announcement did not mention specific transaction details.

There is a view that China does not recognize the legality of Virtual Money and that overseas tax payments cannot be offset. However, in reality, China has not denied the legality of Virtual Money, it just does not recognize its legal currency attributes. Relevant policies classify Virtual Money as "virtual goods," and judicial practice also acknowledges its property attributes.

Currently, there are no clear regulations in our country's laws regarding taxation on virtual money transactions. In 2008, the State Administration of Taxation issued a reply concerning the taxation of income from online virtual currency transactions, but at that time Bitcoin had not yet been created, and the reply mainly targeted centralized virtual currencies such as QQ coins.

According to current regulatory policies, China prohibits virtual money exchanges from operating domestically and also forbids related trading activities. These are considered "illegal financial activities". Therefore, it is logically and legally difficult for tax authorities to impose taxes on virtual money transactions.

However, in practice, it is not uncommon for individual tax authorities to require additional taxes simply because they do not understand the relevant policies and only see the influx of funds. This ignores the many risks faced by Virtual Money investors, such as account freezes, asset losses, and so on.

Overall, the legal status of virtual money trading in China remains unclear, and relevant tax policies need further clarification. Investors should exercise caution and fully understand the associated legal risks.