Author: FinTax
During this discussion, the global regulatory compliance heat for crypto assets continues to rise, with countries strengthening tax information exchange and tracking for on-chain assets, offshore accounts, and cross-border transactions. In this discussion, Calix and William shared their cross-border tax practice experiences and on-chain business experiences, discussing 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 tax system for Web3 in the future and discussed tax logic in various scenarios, including exchange compliance, DeFi, mining, and airdrops.
Who should pay taxes on cross-border income?
Calix: I would like to start by asking a 'soul question'. You are usually engaged in mining, and the company sometimes pays bonuses in cryptocurrencies. How do you typically fulfill your tax obligations for this type of income?
William: This is a very practical question. I completely agree with the viewpoint you mentioned earlier: since we are enjoying the infrastructure and business environment provided by a certain country or region, fulfilling tax obligations is inherently reasonable. However, the actual situation is not that simple. For example, our company's clients are distributed across North America, Europe, the Middle East, and other markets, and this income relies on conditions provided by multiple regions, making it hard to attribute it fully to one place.
Although I primarily deal with US clients and most of the income comes from the US market, it is actually difficult to have a definite answer as to who this tax should be paid to.
In general, I have the willingness to pay taxes; however, for this type of income, it is indeed not easy to clarify to whom the money should be paid. After all, the formation of this income does not entirely depend on where I am.
Calix: I think your answer indeed touches on a key point. Web3 projects are inherently cross-national and cross-regional, making it hard to accurately attribute income to any one place. Economic activities are closely related to customer sources, as well as the platforms, networks, and infrastructures used. Therefore, the question of who should ultimately pay this tax is indeed worth exploring in depth.
To be honest, although I have been working in tax-related fields for many years, I have been confused about this issue myself. According to current tax laws, I might be a tax resident of mainland China, and I might also have tax obligations in Singapore, but my business is mainly directed towards North America, and sometimes I even receive compensation through a Hong Kong company. If I were to follow tax laws strictly, the surface answer might be clear, but when considering what method is more reasonable, it is indeed worth pondering. For Web3 practitioners, these discussions often exceed the scope that traditional tax frameworks can fully cover.
William: That's right. I think the core issue lies in the fact that the evolution of global tax regulatory systems is indeed struggling to keep pace with technological and industry developments. Regulation has been trying to catch up, but changes in the industry and technological innovations are always ahead. This 'catch-up' state may persist for a long time, with a dynamic balance always existing between regulation and the industry.
Case Discussion: Tax Supplement for Individual Crypto Trading in Mainland China
Calix: Recently, there have been two hot topics in the Chinese Twitter space, one of which is an announcement from the Zhejiang tax authority stating that an individual was required to pay extra taxes due to crypto trading. Later, we learned through some channels that this was actually due to CRS information exchange, where the tax authority discovered an abnormal balance in his overseas bank account and asked him to explain the source of the funds. He explained that this portion was investment income and thus required tax payment, and this investment happened to involve cryptocurrencies.
For me, such cases are not surprising, as this is my area of expertise, so I find it quite normal and representative. William, you have been working on on-chain projects like DeFi and mining; what do you think of this case?
William: Indeed, this is very representative. We ourselves had long predicted that crypto trading would eventually fall within the tax scope. However, when this matter actually happens close to home, especially for many Chinese people, the impact is still quite significant. Traditional DeFi or some purely on-chain activities have always been difficult to regulate, often relying on users' awareness. In the past, there were indeed regulatory obstacles that led tax authorities to not exert particularly strong enforcement on these relatively niche, decentralized, and hard-to-trace on-chain activities.
I believe the reason why this is happening so 'timely' now is also related to other trends in the industry. Recently, there have been many reports showing that some US stock investors have received text messages or phone calls requesting supplemental tax payments, indicating that regulation has begun to track individuals' foreign income more closely, with the first focus being overseas securities investments.
The logic behind this is also very clear: the intersection of US stocks and the crypto space is growing. From Robinhood to Tiger Brokers and Futu in Asia, even Guotai Junan International, many brokerages are dealing with crypto assets, and the connection between US stocks and crypto assets has become difficult to separate. Once we need to comprehensively look at foreign income, checking US stocks will easily bring crypto into the view, especially since the volume of crypto assets is no longer small.
Moreover, this 'stock-coin combination' is not a short-term phenomenon. For instance, in the US, some companies are trying to tokenize US stocks; conversely, in Asia, they are putting crypto assets into listed companies to drive stock prices, gain premiums, and boost secondary market performance. The interests driving this combination, whether 'stocks turn into coins' or 'coins become stocks', will further strengthen the connection between the two, naturally making 'crypto trading requires taxes' unavoidable.
Overall, the crypto asset market and stock market are highly intertwined. As this trend continues to develop, the tax issues related to cryptocurrency trading will inevitably become more rigid, and the space for avoidance will become smaller.
Calix: This perspective is indeed quite novel. I hadn’t previously considered the 'stock-coin linkage' angle deeply. After all, for stock investments, people are already accustomed to where they earn money and where they pay taxes, regardless of whether it’s capital gains tax or operating income from quantitative investments; the framework is relatively clear.
However, in the context of cryptocurrencies, in some regions, especially mainland China, there are indeed still gray areas regarding 'whether to pay taxes and what taxes to pay'. However, from the evolution of stocks and tokens' business, this line of reasoning is actually very enlightening and serves as a reminder that this is a new issue that requires long-term attention.
The long-term game between regulation and tax avoidance
William: Based on your years of frontline tax practice experience, now that the precedent has been set, do you think some people might avoid cryptocurrency due to concerns about tax risks? Or will there still be those who are willing to take risks to evade taxes, or even simply not report taxes and continue to operate heavily in the crypto space? What impact might this have on the overall industry direction?
Calix: This is a very typical practical issue. I have always believed that the relationship between regulation and 'anti-regulation' has always existed, and this is not only a characteristic of the crypto space but of traditional industries as well. For tax authorities or any regulatory agency, they certainly want to collect the taxes due as completely as possible; from the taxpayer's perspective, regardless of the region, everyone hopes to minimize legal tax burdens or lower tax liabilities, and these two demands are inherently contradictory.
From my experience, this dynamic is akin to a contradiction embedded in human nature, always moving forward through cycles of conflict and balance, then conflict and rebalancing. Especially in recent years, regulatory methods have become increasingly diverse, and technological measures more digitized. In mainland China, for instance, the tax regulatory capabilities have indeed improved significantly in recent years, and the level of information technology is increasing. However, at the same time, tax avoidance methods are also evolving. Early avoidance methods might have been cash transactions, concealing income, and money laundering, but here I refer to 'tax avoidance' as non-compliant tax evasion behaviors.
Then came cryptocurrencies, which provided some taxpayers with a new operational space. For a considerable period, cryptocurrencies were indeed difficult for tax authorities to track. Even if some regulatory agencies have on-chain tracking capabilities, the actual enforcement of taxes often lacks rigor, allowing some individuals to reap the 'benefits' during this time.
However, the core in the future will still depend on the volume. For example, in the early days of the crypto space (2013 to 2017), many large mining farms and miners actually paid great attention to financial and tax compliance, seeing compliance as a business baseline. However, there were also players who were large-scale and still willing to take risks to evade taxes; these two situations have always coexisted.
From a trend perspective, the early 'wild' phase saw a low emphasis on compliance, but today, more and more large institutions prioritize compliance. After all, in mainstream markets like Hong Kong, Singapore, and Europe and the USA, regulatory authorities, especially tax authorities, 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 depends more on the actual amounts involved. If the amounts are too small, completing some necessary reporting actions is usually sufficient. Enforcement also needs to consider the cost-benefit ratio; unless there are some typical cases with 'demonstrative significance', like the recent discussion on Twitter about 'paying over a hundred thousand in taxes', the amount is not large but serves as a warning.
Therefore, overall, the importance of compliance for large institutions will only continue to increase, as it is a prerequisite for sustainable operation; whereas individuals on the C-end, like in the real world, are fundamentally still directly related to the amount of money involved.
The boundary between improper income and compliant assets
William: I think there's an interesting point here. Many people also feel that paying taxes is, in a sense, a way to prove the legality of assets or income. But in the crypto space, to put it bluntly, there are quite a few behaviors that could be described as 'scams', which, in legal terms, are improper financial operations. These actions can also yield high returns. If these individuals pay taxes as required, does that mean they are, in a way, 'laundering' essentially illegitimate money through taxation? This question might be a bit sensitive; what do you think?
Calix: This is a very good question, and I often contemplate this boundary myself. I think whether to pay taxes can at most prove that tax obligations have been fulfilled, but it cannot fundamentally prove that these funds are legal in a broader sense. If a sum of money simultaneously violates other financial regulatory laws, such as SEC regulations, or involves fraud or other financial violations, even if taxes are paid, it does not impact other regulatory agencies' penalties and tracing of the source of these funds.
Moreover, if the funds are related to money laundering, organized crime, or gray areas, touching on international anti-money laundering regulations, or if an individual in Hong Kong violates local customs or financial regulations, then paying taxes in Hong Kong does not simply mean that this money is not 'dirty money'. Tax compliance and the legality of funds are two separate legal aspects and cannot simply be equated.
William: I agree. I want to add that the issue of 'tax' should have been discussed much earlier because one must first acknowledge that an asset is legitimate before talking about taxation. If a sum of money cannot even be effectively recognized as having asset properties, it cannot be considered a taxable property, and thus there is no discussion of declaration or tax payment.
In the overall environment of China, this area has always been relatively vague, mainly because, many times, the legality of assets has not been fully established, making it difficult for everyone to develop a habit of paying taxes, and regulation also struggles to make real progress. However, when viewed globally, especially in most developed countries and regions, the legality of crypto assets is now quite clear. Once legal status is established, local tax authorities will require this portion of income to fulfill tax obligations.
For many Chinese individuals, if this amount is confirmed as taxable foreign income, theoretically, it is quite difficult to completely bypass it. The current situation is also related to the gaps in international systems. In the past, people thought the on-chain activities had technical barriers and were highly concealed, making regulation difficult to track, leading to a certain 'illusion'. However, a very clear trend now is the development of RegTech (regulatory technology). It is continuously enhancing the regulatory agencies' information acquisition and data analysis capabilities, and many service companies are providing support in this regard, which will gradually bridge the information gap between regulation and industry.
The tax planning space in the crypto space for enterprises and individuals
William: I would like to ask you a practical question. Since for ordinary users it is quite difficult to completely 'evade' this tax, is it still possible to conduct some tax planning through compliant means? Based on your practical experience, is there a significant space for enterprises and individuals to engage in tax planning within the crypto space?
Calix: I will start with a rather 'heartfelt' conclusion on this topic: for most ordinary people, the scope for tax planning is actually very limited. The main reason is that ordinary people's sources of income are relatively singular, mainly consisting of salaries, bonuses, or some minor allowances, all of which are fully recorded at the company end, making it difficult for individuals to have any extra 'optimization' room once the enterprise reports truthfully.
Therefore, for ordinary individuals, the best they can do is to fully utilize the preferential policies already available in local tax laws, such as exemptions, child support, elderly support, and marriage deductions. Properly applying these basic exemptions and ensuring compliance in reporting is already considered the 'optimal solution'.
William: Yes, it does sound like there is limited space.
Calix: But for high-net-worth individuals or enterprises, the situation is different. Their income forms and structures are usually more complex, with diverse sources and larger transaction volumes, often involving more cross-border tax matters. This diversity and complexity naturally bring more operational space.
In simple terms, different types of income have different applicable tax rates and taxation methods; for example, wages are taxed in full, while capital gains or dividends often have relatively favorable tax rates or exemption conditions. When adding the differences in tax systems between different regions, such as mainland China, Hong Kong, Singapore, the United States, or Canada, the design of the systems and tax burdens is very evident, leading to potential 'arbitrage opportunities' in cross-border arrangements.
And don't forget, whether in a civil law or common law system, the underlying tax laws are expressed through texts, which often leave some 'gray areas'. For high-net-worth individuals and large institutions, they have sufficient resources and professional advisory teams to study and utilize these spaces, maximizing tax optimization within the legal limits.
This is also why I have always felt that the middle class is actually one of the most burdened groups: their income appears to be not low, working hard in companies or large enterprises, earning hundreds of thousands annually, often working overtime, but their income structure is singular, with limited operational space and minimal tax-saving room; in contrast, high-net-worth individuals and large institutions earn more and have more tools at their disposal.
Therefore, in any country, the middle class is usually a key focus group for tax authorities — income exceeds sensitive thresholds, but they lack sufficient resources to legally hedge, making them most easily 'precisely locked in' during enforcement.
Potential tax obligations and optimization space for income from mining, airdrops, DeFi, etc.
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 crypto space has indeed provided many middle-class and ordinary people with more diverse income channels, such as mining, airdrops, staking, and DeFi earnings. For instance, a mining machine might only cost $2,000, and buying a few of them can be manageable for the middle class, essentially functioning as a small 'enterprise'. This new income brings added complexity; could you briefly introduce what different forms might involve in terms of tax obligations?
Calix: I think discussing 'how to pay taxes' directly is not as effective as discussing whether there are any legal spaces within these behaviors. Although this topic is indeed sensitive, I believe it can still be briefly addressed.
Many ordinary people seem to have more diverse income forms, but from a tax perspective, the core issue is that the income is generally still derived from oneself, lacking multi-layer structures like trusts, companies, or funds to disperse tax burdens. For instance, mining is often recognized as business income in most regions; airdrops, if merely received but not disposed of, generally will not trigger tax obligations until converted into fiat or exchanged for other currencies, resulting in actual gains, thereby requiring declaration. Staking or DeFi earnings can be considered capital gains in some jurisdictions, and capital gains tax rates are usually lower than business income rates, with some regions not imposing them at all.
So there is indeed a space for 'reasonable definition' here, such as whether certain high-tax business income can be reasonably interpreted as capital gains or other income types with favorable tax rates according to local tax laws. But this premise is that the tax law leaves gray areas, and regulators cannot fully and precisely track on-chain activities during enforcement. Otherwise, once the data becomes traceable, the space will greatly shrink.
Thus, essentially, it is unrealistic for ordinary people to engage in large-scale tax planning, as all income is registered under their personal names, making it easy to be classified as business income or high-tax categories. Comparatively, for situations like airdrops and forks, if local policies allow, they might be treated as low-tax or deferred. Many people study how to reasonably convert high-tax portions into lower-tax categories, which requires specific local laws to have sufficient flexibility and compliance in operations.
The practical considerations of digital nomad identity planning
William: I would like to follow up on one point: there are currently quite a few people in the crypto space who refer to themselves as 'digital nomads'. In the past, they may not have paid much attention, thinking that as long as they did not engage in illegal operations, reporting taxes in their home country was sufficient. But do you think more people will actively change their tax residency to overseas regions in the future? For instance, aiming to utilize double tax treaties to achieve 'I paid taxes in Singapore, so I don’t need to pay taxes in mainland China again.' Will this path become a more popular legal planning direction?
Calix: This is actually a relatively legitimate approach, using different tax jurisdictions to reduce overall tax burdens. But I also want to remind you that regardless of where you report taxes, you must keep good records of fund inflows and outflows, transaction records, and other materials, which can serve as key evidence during tax inquiries to avoid unnecessary troubles. Moreover, there is currently a CRS (Common Reporting Standard) mechanism globally, which makes it difficult to completely 'hide' information in the long run. From a big-picture perspective, cross-border identity planning can be considered, but in any case, all documentation and records must be complete, and what should be declared must be reported truthfully.
I want to add a point; take Singapore as an example. Recently, a friend asked a similar question. He works in Singapore, and his income is settled in USDT or fiat currency, with normal tax payments locally. He asked whether he still needs to report to mainland China. His situation involves spending less than 183 days in mainland China each year.
From the perspective of mainland tax laws, whether an individual constitutes a tax resident is primarily determined by the '183 days' rule, but finer regulations and practices will also consider nationality, household registration, and primary social relationships. If these ties are all in the home country, even if the person is overseas, they may still be viewed as a tax resident of China and be required to complete a full calculation to offset already paid taxes. Moreover, the type of identity you hold in Singapore, whether EP (Employment Pass), PR (Permanent Resident), or another type, may also affect the outcome. There isn't a fixed template; it must be analyzed on a case-by-case basis.
William: So even if you haven't spent a full 183 days in mainland China within a year, it cannot be simply assumed that you're completely 'safe'.
Calix: Yes, things are not that absolute. There is a 'tie-breaker rule' in international taxation, which looks at your family ties, center of economic interests, daily life trajectory, and other factors, to assess the primary tax jurisdiction.
William: Yes, many people tend to overlook this point. Even if one is overseas, with visas or identities also overseas, if their main family and social ties remain in their home country, from the perspective of the 'tie-breaker rule', they are often still recognized as tax residents of that country, so it is crucial to pay special attention to this part.
Imagining the future tax system for cryptocurrencies
Calix: Lastly, I would like to ask a more open question, which also serves as the conclusion of this discussion.
From your personal perspective, as someone who has been deeply engaged in the crypto space for many years, what kind of tax system do you think would be more friendly for Web3 users? Or, what does your most ideal and anticipated tax model look like?
William: This question is somewhat my personal viewpoint and does not represent any company's position.
I actually have always been quite aligned with the concept of 'sovereign individuals', which is inherently crypto-native, and I am somewhat idealistic, agreeing with what Vitalik Buterin and others have mentioned about the possibility of 'Network State'. I believe that at some point in the future, this form will gradually take root in some corner of the world, and may even become an irreversible trend.
As time progresses, the infrastructure that humanity relies on may increasingly shift from the physical world to the digital world. For me, currently about 80% is still at the physical level, while 20% is digital, but in the future, the impact of digital infrastructure on everyone will surely surpass that of traditional physical environments.
Just like in the past, when it was often said in the internet sector that 'hardware is free, software is charged', manufacturers once gave away phones for free, but the content and services were charged long-term. I feel that the future may be similar: the 'hardware' part of the physical world may bear a lighter burden, while what truly requires ongoing payment will be the 'services' in the digital world.
From this perspective, I strongly agree with the viewpoint you mentioned earlier: blockchain infrastructure relies on physical resources such as electricity, networks, and chips. Miners and nodes consume these resources to provide network services, so the money they earn should bear most of the tax responsibilities in the physical world. For C-end individuals, they enjoy the digital services provided by these nodes and miners, thus paying 'service fees' to the network through Gas fees, which miners and nodes use to fulfill tax obligations to the real world.
Therefore, in my ideal model, it would likely be a two-layer structure:
The first layer, infrastructure providers (miners, nodes) pay taxes to the physical world;
The second layer, individual users indirectly pay fees to the network through Gas fees and other forms, which the network then returns to the real-world tax system.
Thus, as the proportion of digital spending by humanity continues to increase in the future, the direct tax burden in the physical world will gradually decrease, while the blockchain network itself will resemble a self-governing micro-tax system, fulfilling corresponding real obligations through the Gas mechanism and distribution structure.
Calix: I think this is a very imaginative and somewhat forward-looking assumption. I also believe that as the crypto industry develops, it will certainly bear an increasingly larger volume of assets, and the integration with traditional finance will accelerate. In the future, it may replace some inefficient and opaque parts of traditional finance, which will inevitably require matching new legal systems and regulatory frameworks.
Many of the viewpoints you shared today are very enlightening; when conducting our current business, we also need to think more about what might happen in the future and even push for some changes as much as possible. I would like to add a point about RWA (Real World Assets), as many assets being put on the blockchain are essentially achieved through layers of packaging, nesting, and contract mapping, with on-chain and off-chain still remaining quite distant. However, this may only be a transitional phase; in the future, if legal systems are more refined, asset information may be more directly and transparently brought on-chain, and the complex nesting in between may gradually disappear.
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