Author: FinTax
During this discussion, the global regulatory compliance heat for crypto assets continues to rise, with various countries strengthening tax information exchange and tracking for on-chain assets, offshore accounts, and cross-border transactions. In this conversation, Calix and William combined their cross-border tax practice experiences and on-chain business experiences to discuss hot topics such as global tax compliance for crypto assets, tax arrangements, and regulatory games. The two discussants also shared their visions for the ideal future Web3 tax system and discussed the tax logic in various scenarios such as exchange compliance, DeFi, mining, and airdrops with real cases.
Who should taxes be paid to for cross-border income?
Calix: I would like to ask you a 'soul question' first. You are also involved in mining, and the company sometimes pays bonuses in cryptocurrency. How do you usually fulfill your tax obligations for this type of income?
William: This is a very real problem. I strongly agree with a point you made earlier: since we are enjoying the infrastructure and business environment provided by a certain country or region, fulfilling tax obligations is itself reasonable. However, the actual situation is not that simple. For example, our company's clients are distributed across multiple markets such as North America, Europe, and the Middle East. The income relies on conditions provided by multiple locations, making it difficult to fully attribute it to a single place.
Although I primarily engage with American clients, and most of my income comes from the US market, determining who should pay this tax is actually quite difficult to ascertain.
Overall, I have the willingness to pay taxes; however, determining who this money should go to is indeed not easy to clarify. After all, the formation of this income does not solely depend on where I am.
Calix: I think your answer indeed hits the key point. Web3 projects themselves are cross-national and cross-regional, making it difficult for income to be accurately attributed to a specific location. Economic activities are closely related to customer sources, as well as the platforms, networks, and infrastructure used. Therefore, determining who should ultimately collect this tax is indeed a question worth exploring in depth.
To be honest, although I have been working in tax-related fields for many years, I have always been confused about this issue myself. According to current tax laws, I might be a tax resident in mainland China, and I might also have tax obligations in Singapore, but my business primarily targets North America, and sometimes I even receive compensation through a Hong Kong company. If I strictly follow the tax laws, the answer may seem clear on the surface, but determining what is more reasonable is indeed worth pondering. For Web3 practitioners, these discussions often exceed the scope that traditional tax frameworks can fully cover.
William: Exactly, I think the core issue lies in the fact that the speed of evolution of the global tax regulatory system is indeed difficult to keep pace with the technological and industry development. Regulation has been trying to catch up, but industry changes and technological innovations are always ahead. This 'catch-up' state may persist for a long time, and there will always be a dynamic balance between regulation and the industry.
Case discussion: Individuals in mainland China paying back taxes on cryptocurrency trading.
Calix: Recently, there have been two hot topics in the Chinese Twitter community, one of which is an announcement by the Zhejiang Tax Bureau stating that an individual was required to pay back taxes due to cryptocurrency trading. Later, we learned through various channels that, in fact, after CRS (Common Reporting Standard) information exchange, the tax bureau found that he had an unusual balance in his overseas bank account and asked him to explain the source of the funds. He explained that this portion was investment income, so he needed to pay back taxes, and this investment happened to involve cryptocurrency.
For me, this kind of case is not surprising, as it falls within my area of expertise, so I find it quite normal and representative. William, you have been involved in on-chain projects like DeFi and mining; what do you think of this case?
William: This is indeed very representative. We ourselves assessed early on that cryptocurrency trading would eventually fall under the tax regime. However, when this happens close to home, especially for many Chinese, the impact is quite significant. Traditional DeFi or purely on-chain activities have always been challenging to regulate, often relying on users' self-awareness. In the past, there have certainly been regulatory barriers that led tax authorities to not have particularly strong enforcement against these relatively niche, decentralized, and difficult-to-trace on-chain activities.
I think the reason this is happening so 'timely' is also related to other trends in the industry. Recent news has shown that some US stock investors have received notifications via text or phone calls asking them to pay back taxes, indicating that regulation is beginning to track individuals' offshore income more closely, with the first focus being overseas securities investments.
The underlying logic is also clear: the intersection between the US stock market and the cryptocurrency market is growing. From Robinhood to the Asian counterparts like Tiger Brokers and Futu, even Guotai Junan International, many brokerages are dealing with crypto assets, making it increasingly difficult to separate the US stock market from crypto assets. Once we need to look at overseas income comprehensively, just checking the US stock market could easily bring the cryptocurrency market into view, especially considering that the size of crypto assets is no longer small.
Moreover, this 'stock-coin combination' is not a short-term phenomenon. For example, in the US, some companies are attempting to tokenize US stocks; in Asia, conversely, some are packaging crypto assets into listed companies to drive stock prices, obtain premiums, and boost secondary market performance. This combination is driven by interests, and whether it is 'stock converting to coin' or 'coin wrapping stock', both will further strengthen the connection, naturally making 'paying taxes on cryptocurrency trading' inevitable.
Overall, the cryptocurrency market and the stock market have become highly intertwined. As this trend continues to develop, tax issues related to cryptocurrency trading will inevitably become more rigid, and the space for evasion will shrink.
Calix: This perspective is indeed quite novel; I hadn't previously thought deeply from the angle of 'stock-coin linkage'. After all, for stock investments, people have already become accustomed to which market the money is earned in and where taxes should be paid, whether it is capital gains tax or operating income from quantitative investments, the framework is relatively clear.
However, when it comes to cryptocurrency, in some regions, especially mainland China, there are indeed still gray areas regarding 'whether to pay taxes and what taxes to pay'. However, based on the evolution of business between stocks and tokens, this deductive path is indeed enlightening and serves as a reminder that this is a new issue requiring long-term attention.
The long-term game of regulation and tax evasion
William: Based on your years of frontline tax practice experience, now that this topic has been initiated, do you think there will be individuals who, fearing tax risks, will start to avoid cryptocurrency? Or will there still be people who will take risks to find ways to evade taxes, or even simply not report taxes and continue to operate heavily in the cryptocurrency market? What impact will this have on the overall industry direction?
Calix: This is a very typical real-world issue. I have always believed that regulation and 'anti-regulation' exist simultaneously; this is not just a characteristic of the cryptocurrency sphere but applies to traditional industries as well. For tax authorities or any regulatory agency, they certainly hope to collect as much tax as possible; meanwhile, from the taxpayer's perspective, regardless of the region, everyone hopes to legally minimize taxes or reduce their tax burden. These two demands are inherently opposing.
From my experience, this dynamic resembles a contradiction inherent in human nature, constantly advancing through cycles of conflict, balance, and further conflict. Especially in recent years, regulatory measures have become increasingly diverse, and technological means are also becoming more digitalized. In mainland China, for instance, tax regulatory capabilities have indeed improved rapidly in recent years, and the level of informatization is also increasing. At the same time, tax evasion methods are evolving. In the early days, it might have been solely cash transactions, concealing income, and traditional money laundering methods. Here, I refer to 'tax evasion' as referring to non-compliant tax evasion behavior.
Later, with the emergence of cryptocurrency, for some taxpayers, it essentially added a new operational space. For quite a long time, cryptocurrencies were indeed quite difficult for tax authorities to track. Even if some regulatory agencies had on-chain tracking capabilities, the enforcement often lacked sufficient strength, so some people indeed tasted the 'sweetness' during that period.
But the core of the future still depends on scale. For example, in the early days of the cryptocurrency market (2013 to 2017), many large mining operations and miners indeed placed great importance on financial and tax compliance; compliance was the bottom line of operations. However, there were also some large-scale players willing to take risks to evade taxes, and these two situations have always coexisted.
In terms of trends, the early 'grassroots' phase had low emphasis on compliance, but as time goes on, more and more large institutions will prioritize compliance. After all, in mainstream markets like Hong Kong, Singapore, and Europe and America, regulatory authorities, especially tax agencies, are gaining a deeper understanding of crypto assets, which is an irreversible trend.
As for individual investors, such as retail investors or Web3 project employees, whether they can comply more depends on the actual amount of money. If the scale is too small, simply completing some necessary reporting actions may suffice. Law enforcement must also consider the cost-benefit ratio, unless typical cases with 'demonstrative significance' arise, such as the recent discussion on Twitter about someone 'paying back tens of thousands in taxes', the amount is not large, but it carries a certain warning effect.
Overall, large institutions will place increasingly higher importance on compliance, as this is a prerequisite for sustainable operations. On the other hand, for individual consumers, similar to the real world, it is essentially still directly related to the amount of money involved.
The boundary between improper income and asset compliance
William: I think there's an interesting point here. Many people feel that paying taxes is, to some extent, a way to prove the legality of property or income. However, in the cryptocurrency sphere, to speak frankly, there are quite a few 'scams' happening, which in legal terms refers to some improper financial operations. These actions may also bring substantial profits. If these individuals pay taxes as required, does that count as, in a sense, 'laundering' essentially improper money through taxes? This question might be a bit sensitive; what do you think?
Calix: This is a great question. I often contemplate this boundary myself. I believe whether to pay taxes can at most prove that tax obligations have been fulfilled, but it cannot fundamentally prove that this fund is legal in a broader sense. If a sum of money simultaneously violates other financial regulatory laws, such as SEC-related regulations or involves fraud and other financial illegal activities, even if taxes are paid, it does not affect the penalties and tracing by other regulatory agencies regarding the source of these funds.
For instance, if funds are involved in money laundering, organized crime, or gray areas, touching upon international anti-money laundering regulations, or if someone in Hong Kong violates local customs or financial regulatory laws, then paying taxes in Hong Kong cannot simply be interpreted as that money being 'clean'. Tax compliance and the legality of funds represent two different legal aspects and cannot be simply equated.
William: I agree. I would like to add that I have always felt that the issue of 'tax' should have been discussed earlier because one must first acknowledge that an asset is legitimate before discussing taxation. If the nature of the asset cannot even be effectively confirmed, it cannot be treated as a quantifiable property, and naturally, there is nothing to report or tax.
In the overall environment in China, this area has always been relatively ambiguous, mainly because many times the legality of assets has not been fully confirmed, making it difficult for everyone to establish tax-paying habits, and regulators also find it challenging to truly advance. However, from a global perspective, especially in most developed countries and regions, the legality of crypto assets has become relatively clear. As long as the legal status is confirmed, local tax authorities will require this portion of income to fulfill tax obligations.
For many Chinese, if this money is confirmed overseas taxable income, it is theoretically very difficult to completely bypass it. The current timing is also related to international systemic differences. In the past, people thought that the on-chain aspect had technical barriers and strong concealment, making it difficult for regulators to track, so they held a 'fantasy'. However, now a very obvious trend is the development of RegTech (Regulatory Technology). It continually enhances the information grasp and data analysis capabilities of regulatory agencies, and many service companies are providing support, which will gradually bridge the information gap between regulation and the industry.
Tax planning space for enterprises and individuals in the cryptocurrency sphere
William: I would like to ask you a real-world question. Since it is very difficult for ordinary users to completely 'avoid' this tax, is there still a possibility to do some tax planning through compliant means? From your actual experience, how much space do enterprises and individuals have for tax planning in the cryptocurrency space?
Calix: I will start with a rather 'heart-wrenching' conclusion on this topic: for most ordinary people, the space for tax planning is actually very limited. The main reason is that ordinary people's sources of income are relatively singular, mainly salaries, bonuses, or some small allowances, all of which are fully recorded by the company. Once the enterprise reports truthfully, individuals find it difficult to have any extra 'optimization' leeway.
Thus, for ordinary individuals, what they can do more is to make full use of preferential policies already present in the local tax laws, such as exemptions, child support, elderly care, and marriage deductions. Effectively applying these basic deductions and ensuring that necessary compliance reporting is solidly done is already considered the 'optimal solution'.
William: Yes, it does sound like space is limited.
Calix: However, the situation is different for high-net-worth individuals or enterprises. Their income forms and structures are typically more complex, with diverse sources and larger transaction scales, as well as more cross-border tax matters. This diversity and complexity naturally bring more operational space.
In simple terms, different types of income are subject to different tax rates and methods of taxation. For example, salaries are taxed at full amounts, while capital gains or dividends often have relatively preferential tax rates or exemptions. Moreover, the differences in tax systems between different regions, such as mainland China, Hong Kong, Singapore, the US, or Canada, are quite pronounced, and in cross-border arrangements, there may be 'arbitrage spaces' that can be utilized.
Moreover, don't forget that regardless of whether it is a civil law system or a common law system, the foundation of tax law is expressed through texts, and legal provisions often leave some 'gray areas'. For high-net-worth individuals and large institutions, they have sufficient resources and professional advisory teams to study and exploit these spaces to maximize tax optimization within the boundaries of the law.
This is also why I have always felt that the middle class is one of the most burdened groups: their income appears not low, working hard in companies or large firms, earning hundreds of thousands annually and often working overtime, yet their income structure is singular, operational space limited, and tax-saving leeway minimal; in contrast, high-net-worth individuals and large institutions earn more and have more operational tools available.
Therefore, regardless of the country, the middle class is usually the group most focused on by tax authorities — income surpassing sensitive thresholds but lacking sufficient resources to legally hedge, making them the easiest to be 'precisely targeted' during enforcement.
Potential tax obligations and optimization spaces for income from mining, airdrops, and DeFi.
William: Calix, you just mentioned the issue of income structure, which I find very interesting. In the past, people's sources of income were indeed quite singular, mainly salaries and bonuses. But the cryptocurrency market has indeed provided many middle-class individuals and ordinary people with a more diverse income channel, such as mining, airdrops, staking, and DeFi yields. A mining machine might only cost $2,000, and buying a few would be bearable for the middle class, essentially making it a small-scale 'enterprise' operation. This kind of income brings new complexities; could you briefly introduce the different forms of income and their potential tax obligations?
Calix: I think discussing 'how to pay taxes' directly with everyone is less effective than mentioning whether there are some legal spaces within these actions. Although this topic is indeed sensitive, I think it can still be briefly discussed.
Many ordinary people seem to have more diverse forms of income, but from a tax perspective, the core issue is: the income entity is generally still you, without the multi-layer structures like trusts, companies, or funds to disperse the tax burden. For instance, mining is often recognized as business income in most regions; airdrops, if simply received but not disposed of, generally do not trigger tax obligations until converted into fiat or swapped for other currencies, generating actual profits that need to be reported. Staking or DeFi yields can sometimes be classified as capital gains in certain jurisdictions, and capital gains tax rates are usually lower than those for business income, with some regions not imposing taxes at all.
So there is indeed space for 'reasonable definitions' in this area, such as whether certain high tax burden operating income can be reasonably interpreted as capital gains or other types of income with preferential tax rates according to local tax laws. But the premise is that tax laws leave gray areas, and regulatory enforcement cannot fully and accurately track on-chain activities. Otherwise, once the data is traceable, the space will shrink significantly.
Essentially, it is unrealistic for ordinary people to carry out large-scale tax planning because all income is under their personal names, making it easily classified as operating income or high tax burden categories. Relatively speaking, for things like airdrops and forks, if local policies allow, they may be treated as low tax burden or deferred. Many people study how to reasonably convert high tax burden portions into categories with lower tax rates and better treatment; this requires looking at whether local laws provide enough space and whether the operations comply.
Real-world considerations for digital nomad identity planning
William: I would like to follow up on a point: there are many people in the cryptocurrency space who call themselves 'digital nomads'. In the past, they may not have paid much attention, thinking that as long as they did not engage in illegal activities, reporting taxes in their home country would suffice. But do you think there will be more people in the future who actively change their tax residency to some overseas location? For example, seeking to utilize bilateral tax agreements to achieve 'if I pay taxes in Singapore, I do not need to pay in mainland China again'. Will this path become a more common legal planning direction?
Calix: Actually, this is a relatively legitimate approach, reasonably utilizing different tax jurisdictions to reduce overall tax burden. But I also want to remind you that no matter where you file taxes, you must keep good records of inflows and outflows, trading records, and other materials, as they can serve as key evidence during tax inquiries, avoiding unnecessary trouble. Moreover, there is currently a CRS (Common Reporting Standard) mechanism globally, making it very difficult to completely 'hide' information for an extended period. From a broader perspective, cross-border identity planning is something to consider, but in any case, materials and records must be complete, and what needs to be declared must be declared truthfully.
I would like to add one more point. Take Singapore as an example; recently, a friend of mine asked a similar question. He works in Singapore, and his income is settled in USDT or fiat, all complying with local tax laws. He asked: does he still need to report back to mainland China? His situation is that he spends less than 183 days in the mainland each year.
From the perspective of mainland tax law, whether an individual constitutes a tax resident is primarily based on the '183 days' rule, but in more detailed regulations and practical operations, factors such as nationality, household registration, and primary social relationships will also be considered. If these connections are all in China, even if the person is overseas, they may still be regarded as a Chinese tax resident, needing to conduct a complete reconciliation before deducting already paid taxes. Also, whether you hold an EP (Employment Pass), PR (Permanent Resident), or other types of status in Singapore may affect the outcome. There is no fixed template for these situations; each case must be analyzed individually.
William: Therefore, even if you do not stay in mainland China for a full 183 days in a year, it cannot be simply assumed to be completely 'safe'.
Calix: Yes, things are not that absolute. In international taxation, there is a 'tie-breaker rule' that considers factors like your family relations, economic interests, daily living trajectory, etc., to layer the judgment of the primary tax residence.
William: Yes, many people tend to overlook this point. Even if someone is overseas, with a visa or identity also overseas, if their primary family and social connections remain in their home country, they are often ultimately still recognized as Chinese tax residents according to the 'tie-breaker rule', so it is essential to pay special attention to this aspect.
Thoughts on the future crypto tax system
Calix: Lastly, I would like to ask a more open question, which can also serve as a conclusion to this discussion.
From your personal perspective, as someone who has been deeply involved in the cryptocurrency sphere for many years, what kind of tax system do you think would be more friendly to Web3 users? Or, what is your ideal and most anticipated tax model?
William: This question carries some of my personal viewpoints and does not represent any corporate stance.
I have always agreed with the concept of 'sovereign individuals' as a native idea in cryptocurrency, and I am quite idealistic, favoring the possibility of 'Network States' mentioned by V God and others. I believe that at some point in the future, this form will slowly take root in some corner of the world, and it may even become an irreversible trend.
As time goes on, the infrastructure that humanity relies on may increasingly shift from the physical world to the digital world. For me, currently about 80% is still on the physical level, while 20% is digital, but in the future, the impact of digital infrastructure on everyone will definitely surpass that of the traditional physical environment.
Just like what was often said in the internet circle before, 'hardware is free, software is charged'. There were once manufacturers that distributed mobile phones for free, but content and services were charged long-term. I think the future might be similar: the 'hardware' part of the physical world might bear a lighter burden, while what truly requires continuous payment will be the 'services' in the digital world.
From this perspective, I agree with a point you mentioned earlier: the blockchain infrastructure relies on physical resources like electricity, networks, and chips. Miners and nodes consume these resources to provide network services, and the money they earn should bear most of the tax responsibilities to the physical world. For individual consumers, they benefit from the digital services provided by these nodes and miners, thus paying 'service fees' to the network through means like Gas fees, while miners and nodes fulfill tax obligations to the real world.
Therefore, in my ideal model, it would likely be a two-layer structure.
The first layer involves infrastructure providers (miners, nodes) paying taxes to the physical world.
The second layer involves individual users indirectly paying fees to the network through Gas fees and other means, which the network then channels back to the real-world tax system.
In the future, as the proportion of human digital expenditures continues to increase, the direct tax burden of the physical world will gradually decrease, while the blockchain network itself will resemble a self-governing micro-taxation system, fulfilling corresponding real-world obligations through Gas mechanisms and allocation structures.
Calix: I think this is a very imaginative and forward-thinking assumption. I also believe that with the development of the cryptocurrency industry, it will undoubtedly carry an increasingly large asset volume in the future, and the depth of integration with traditional finance will accelerate. It may eventually replace some inefficient and opaque parts of traditional finance, necessitating the establishment of new legal systems and regulatory frameworks.
Many of the points you shared today are very inspiring. When we conduct our current business, we actually need to think more about what might happen in the future and even try to drive some changes if possible. I would like to add a point about RWA (Real World Assets). Currently, many assets being on-chain are essentially achieved through layers of packaging, nesting, and contractual mapping, and the on-chain and off-chain aspects remain quite distant. But this may just be a transitional phase. In the future, if the legal system becomes more refined, asset information may become more directly and transparently on-chain, and those complex nests may slowly disappear.
