How should crypto investors respond to the voluntary reporting notice for overseas income?

Recently, a tweet on social media regarding overseas income declaration quickly sparked heated discussion, with over 100,000 views.

Many domestic residents mentioned in the comment section that they have received reminders from tax authorities via SMS, the individual tax app, or phone calls, urging them to promptly conduct self-inspection and declaration of overseas income. From this wave of interaction, it is evident that the tax authorities have recently increased their focus on domestic residents’ overseas investments. Such signals are not accidental: as early as November 11, tax departments in Beijing, Guangdong, and four other regions simultaneously exposed six cases of failure to declare overseas income in a timely manner. Clearly, this unified regulatory action is not coincidental; the systematic review of personal overseas income by tax authorities will have a significant impact on high-profile Web3 investment activities.

This article will analyze the collective actions of tax bureaus in six provinces and cities, providing a comprehensive overview of this batch “mass notification” regulatory campaign. From the perspective of crypto practitioners, it will also offer practical compliance self-check and declaration strategies.

1. Why now? CRS and “Golden Tax Phase IV” joint efforts

On November 11 this year, tax departments in Beijing, Guangdong, Shenzhen, Fujian, Xiamen, and Sichuan almost simultaneously issued notices titled “Guidance for Unreported Overseas Income Self-Inspection and Rectification,” and publicly exposed several typical cases, such as Beijing’s Wang paying back 510,000 yuan, Shenzhen’s Zhou paying back 3.362 million yuan, and Xiamen’s Fu paying back as much as 6.987 million yuan. The main reason for this collective action is the support of the “Big Data Tax Analysis System.” The upgrade in supervision is an inevitable result of mature technology, mainly involving CRS (Automatic Exchange of Financial Account Information) standards and the “Golden Tax Phase IV” project.

1.1 Normalization of CRS information backflow

CRS, issued by the Organisation for Economic Co-operation and Development (OECD), is a standard for automatic exchange of financial account tax-related information. Over 100 countries have joined. As of 2023, China has achieved regular automatic exchange with over 100 countries and regions worldwide. The exchanged information is extensive: not only account balances but also bank deposits, securities accounts (such as US and Hong Kong stocks), cash value insurance, offshore trust income, and more.

It is rumored that the recent collective action by tax authorities is due to the completion of exchange and backflow of overseas account information for 2022-2023. Tax authorities hold the “bottom line” data returned via CRS, compare it with domestic declaration records, and individuals with underreporting are immediately identified.

1.2 Precise profiling with “Golden Tax Phase IV”

CRS is a key method for obtaining overseas tax information. With the launch of Golden Tax Phase IV, the regulatory capacity of tax authorities has leapt forward. They now utilize big data, artificial intelligence, and other technologies to efficiently compare multi-dimensional data, including tax, banking, and consumption data. Its core function is to intelligently identify abnormal tax data, upgrading supervision from traditional methods to precise digital review.

The intelligent comparison capabilities of Golden Tax Phase IV can quickly detect obvious tax risks. For example, a resident reports an annual income of 500,000 yuan domestically but owns overseas real estate worth several million yuan; or they purchase large overseas insurance products through domestic accounts. Such significant discrepancies between domestic assets or consumption and overseas holdings will trigger tax alerts, enabling authorities to precisely locate potential risks and provide strong technical support for compliance review.

2. Do overseas crypto asset incomes also need to be taxed?

Many Web3 investors are puzzled: “Since the country bans virtual currency trading, why should it be taxed?”

This view seems reasonable on the surface but is not supported by current tax law. Tax collection and administrative licensing are not the same concept. Even if certain asset transactions are restricted, as long as the activity results in “income,” tax authorities still have the legal right to tax. First, according to the “Individual Income Tax Law,” anyone with a residence in China or who has resided in China for a total of 183 days within a tax year is considered a “resident individual.” China applies a global taxation principle to residents. This means that whether income comes from wages in Beijing, dividends from US stocks, or DeFi yields on-chain, as long as it constitutes “income,” it falls under Chinese tax jurisdiction.

Second, regarding specific implementation standards, as early as 2008, the State Taxation Administration issued a reply stating that income from individuals buying and selling virtual currencies online should be taxed as “property transfer income.” Although initially aimed at game currency, in current regulatory practice, trading gains from cryptocurrencies like Bitcoin are often referenced to this regulation.

Therefore, even if crypto assets are stored on overseas exchanges or cold wallets, once profits are generated—especially when realized through OTC conversions back into domestic currency—this income is, in principle, considered “overseas income” and must be declared.

3. What are the consequences of non-declaration?

We notice in the comment section of the tweet that some Web3 investors believe, “It’s not too late to pay taxes after being caught.” However, under the tax law framework, passive tax payments and proactive self-declaration have vastly different legal and economic penalties.

3.1 Heavy late payment fines

According to Article 32 of the Tax Collection and Administration Law, if a taxpayer fails to pay taxes on time, the tax authority will order them to pay within a deadline. From the date of overdue, a late fee of 0.05% per day is levied on the overdue amount. Simple calculation shows an annualized late fee rate of 18.25%, far exceeding typical commercial loan interest. This money is a statutory collection, with no room for reduction or exemption; the longer the delay, the heavier the burden.

3.2 Penalties up to 5 times and “tax evasion” classification

According to Article 63 of the Tax Collection and Administration Law, if a taxpayer refuses to declare after being notified by the tax authority, or files false tax returns, and fails to pay or underpays taxes, it constitutes tax evasion. Once classified as evasion, the tax authority will recover the unpaid taxes and late fees, and impose a fine of 50% to 500% of the unpaid tax. For example, if a person owes 1 million yuan but refuses to declare, they may be required to pay the tax plus late fees, and face a fine up to 5 million yuan, greatly increasing economic loss.

3.3 Credit downgrade and criminal risk

According to the “Measures for Publicizing Major Tax Violations and Dishonest Tax Subjects,” if an individual fails to declare crypto income, refuses to declare after being notified, and the unpaid or underpaid taxes exceed 1 million yuan or account for more than 10% of the total tax liability that year, they will be deemed a major dishonest tax subject. Furthermore, such dishonest subjects will be directly rated as D-level taxpayers. Being rated D-level can lead to restrictions on outbound travel, high consumption limits, and inability to obtain loans.

Additionally, under Article 201 of the Criminal Law, if an individual earns high profits from virtual currency trading but fails to declare and evades taxes exceeding 100,000 yuan (a significant amount), and this amount accounts for over 10% of the total tax payable that year, after receiving a recovery notice from the tax authority and still refusing to pay taxes, they will be convicted of tax evasion. Once convicted, they must pay back taxes and late fees, and their credit and social rights will be severely restricted, with the risk of imprisonment.

4. How to respond upon receiving a notice?

Although the consequences of non-declaration are severe, there is no need to panic or delay upon receiving a reminder or notice from the tax authorities regarding overseas income declaration. The more prudent approach is to quickly verify facts, organize materials, confirm declaration scope, and communicate with the tax authorities based on verifiable evidence.

Step 1: Verification and self-inspection

Log into the “Personal Income Tax” app, check internal messages, alerts, and whether there are any overdue years requiring supplementary declaration; also pay attention to whether SMS or phone notifications specify the relevant years, income types, or processing procedures. Cross-reference the scope of notification, review the past 3-5 years’ overseas-related matters: overseas financial accounts, cross-border fund flows, overseas investment income (including dividends, interest, property transfers), and transactions involving crypto assets, exchanges, conversions, and fund backflows. Simultaneously, organize basic materials proving the source and destination of funds to build a factual chain.

Step 2: Distinguish “principal” from “income”

This is crucial. The tax authority’s focus is on “value-added” income, not the principal. The calculation formula is: taxable income = transfer income - original property value (cost) - reasonable expenses.

Step 3: Evidence collection costs

If you cannot provide clear, verifiable purchase costs and transaction paths, the tax authority may, under risk control, conduct estimated assessments, or even treat the entire withdrawal as income, significantly increasing the tax burden. For example, if a fund of 1 million yuan flows back, and the purchase cost of the corresponding assets was 900,000 yuan with zero reasonable expenses, the taxable income would be 100,000 yuan. But if the taxpayer cannot provide complete transaction records to prove costs and expenses, the tax authority may only recognize part of the costs or use estimated assessments, resulting in a higher taxable income and ultimately a much higher tax liability.

5. How to clarify the “messy” crypto accounts?

For most Web3 investors, the core difficulty in compliance declaration lies in two points: traceability of transaction chains and verifiability of cost basis. Crypto accounts tend to be chaotic mainly due to four structural issues:

• High-frequency trading: numerous transactions, manual verification prone to omissions and errors, difficult to ensure detail completeness.
• Dispersed across multiple platforms and chains: assets spread over various exchanges and wallets, frequent internal transfers, hard to reconstruct fund flow.
• Complex valuation and profit/loss recognition: token-to-token trades, swaps, contract liquidations require valuation at transaction time in fiat currency, and profit/loss calculations.
• DeFi transaction complexity: staking/re-staking, airdrops, liquidity provision, lending interest, etc., with diverse forms, classification ambiguities can lead to misjudged properties, missed income, or double counting.

Lack of detailed, classified, and cost evidence increases the difficulty and cost of subsequent self-inspection, declaration, or explanation, and raises compliance risks.

Conclusion

The collective notices from six regions serve as a signal that residents’ overseas income regulation is becoming “normalization and data-driven.” With the continuous enhancement of CRS information exchange and digital supervision capabilities, discrepancies between overseas accounts and domestic declarations are easier to detect. The compliance cost gap with non-compliance will further widen. For Web3 investors, establishing verifiable accounts and declaration standards early is more certain and cost-effective than remedial measures after the fact.

Therefore, it is recommended to promptly gather transaction data, organize cost basis, and classify income, creating traceable detailed and summary reports to support self-inspection, supplementary explanations, or communication with tax authorities.