Author: @agintender
Original link: https://x.com/agintender/status/2117527218389979391?s=19
Disclaimer: This article is reproduced from another source. Readers can find more information via the original link. If the author has any objections to the way this article has been reproduced, please contact us and we will make changes as requested. This reproduction is for information-sharing purposes only, does not constitute investment advice, and does not represent Wu Shuo’s views or position.
“I work and live overseas, so why do I still have to pay tax on my foreign income?” The person on the phone replied: “As long as you are still a Chinese citizen and your household registration has not been cancelled, your foreign income is subject to tax.”
In mid-October, at half past six in the evening, rainwater streamed down the glass canopy over the terrace café at Pacific Place in Admiralty, Hong Kong. Ajie sat across from me with two phones side by side on the table. The one on the left had a Hong Kong SIM card and was displaying the Twitter home page. Its pinned post was a screenshot of perpetual-contract returns, with an exchange referral code below it. The one on the right had a Chengdu China Mobile SIM card with roaming enabled. Its screen showed a risk-alert text message from the tax bureau in his hometown, along with a record of a landline call that had been disconnected three hours earlier.
“The person on the phone was very polite. They didn’t say a single harsh word.” Ajie poked at the ice melting at the bottom of his cup with a straw, his voice a little tense. “Someone from the tax bureau asked whether I had a financial account in Hong Kong and reminded me to conduct a self-review of my overseas income for the 2022 to 2024 tax years. They asked me to organize explanations of the sources of my funds for those years, the relevant contracts, and proof of tax paid, and get back to them next week.”
Ajie had always been cautious in his circles. In the past two years, friends who handled OTC transactions had one after another had their mainland bank cards frozen, so he had stopped considering C2C transactions using a mainland bank card. Whenever he exchanged USDT for Hong Kong dollars or U.S. dollars on a trading platform, he transferred the funds between accounts in his own name, into a bank account he had opened in Hong Kong. After the money reached Hong Kong, he never sent any of it to mainland China. He kept some in a savings account to cover business-trip expenses in Hong Kong and Macao, and moved most of it into an investment and custody account at the same bank, where he regularly subscribed to U.S. dollar money market funds and short-term bond funds.
“I can’t figure out what the problem is.” Ajie turned his laptop toward me and pulled up a record of an HKD 800,000 credit from October 2024. “I didn’t use a mainland bank card, and I didn’t send the money back to China. Was it because this HKD 800,000 withdrawal was too large that year and triggered a real-time alert between the Hong Kong bank and the mainland tax bureau? If I’d known, I should have taken my friend in Singapore’s advice and withdrawn the money to a Singapore bank first, then transferred it to Hong Kong.”
Seeing Ajie’s eyes fixed on that line in the bank statement, I closed his laptop. Following his questions, we clarified the key points one by one:
How information about a Hong Kong account is exchanged;
Where his referral commissions and advertising fees are sourced;
How to reconstruct the origins and history of that HKD 800,000 when responding to the self-review notice.
Note: This article is for academic research purposes only and does not assume liability. If you have questions, please consult a professional. DYOR
I. How Hong Kong accounts enter tax information exchanges
On January 16, 2026, a report published on the State Taxation Administration’s website confirmed that, starting in 2025, the tax authorities had been reminding taxpayers to conduct self-reviews of their overseas income for the 2022–2024 tax years. At its regular press conference on April 1, 2026, the State Taxation Administration also explicitly mentioned that the tax authorities were using information such as CRS (the Common Reporting Standard) to analyze declarations of overseas income. The notice Ajie received concerned those three years, but he still needs to check with the competent tax authority about the specific source of the leads and why those years were selected.
What can currently be confirmed is that a Hong Kong account can be included in annual information exchanges through CRS. There is no need for Ajie to wait until he transfers money back to mainland China, nor does a particular withdrawal need to exceed any publicly disclosed monetary threshold.
I asked Ajie to pull up the electronic copy he had kept from when he opened a Hong Kong bank account in 2021. On that (Self-Certification Form), the “Tax Residence Jurisdiction” field said “Mainland China,” and the tax identification number field contained his 18-digit ID number, which began with 3301.
The arrangement for the automatic exchange of financial account information between mainland China and Hong Kong took effect on September 6, 2018, and the first exchange took place that same month. Exchanges have continued annually ever since. From the moment Ajie signed that form and the bank identified him as a “mainland China tax resident” based on his account-opening documents and anti-money-laundering (AML/KYC) information, his account entered an annual reporting pipeline. Whether or not he withdrew funds in a given year, the Hong Kong bank would extract data annually, first report it to the Hong Kong Inland Revenue Department, and then have that department exchange it with China’s State Taxation Administration or its authorized representative. As for his friend who works in Singapore, if he remains a mainland China tax resident, the banks in Singapore and Hong Kong will each assess and report his accounts under their respective local CRS rules, whether he transfers money from Singapore to Hong Kong and then to mainland China or not. In theory, even adding n layers of transfer routes cannot break the information-exchange chain.
“Can the data exchanged each year show which crypto platform sent me the money?” Ajie asked.
“It won’t show the counterparty for each individual transfer, but it will show the value of the assets and the gross proceeds from redemptions.” I opened his 2024 Hong Kong bank statement. It listed two subaccounts: a “Current and Savings Account” and an “Investment and Custody Account.”
Under CRS rules, the key financial data reported for an ordinary deposit account consists mainly of the year-end balance or value and annual interest income. It does not include a complete, itemized bank transaction history, identify which transfers came from a crypto platform, or directly calculate gains and losses from crypto trading. But to earn interest, Ajie regularly transferred Hong Kong dollars and U.S. dollars into the adjacent “Investment and Custody Account” to buy and sell money market funds and bond funds. Once an account is classified as an investment and custody account, an additional field is included in CRS reporting: gross proceeds from the sale or redemption of financial assets (Gross Proceeds).
In 2024, Ajie redeemed and repurchased money market funds several times while rebalancing his portfolio, with tens of thousands of U.S. dollars involved each time. The proceeds from each redemption would be added to the “gross proceeds from redemptions.” Someone with only a modest salary recorded in their mainland individual income tax filings, millions of Hong Kong dollars in net assets at year-end in a Hong Kong account, and several million Hong Kong dollars in annual redemptions in an investment account—that kind of discrepancy would have to be included in the screening process.
“What about the trading platforms themselves?” Ajie lowered his voice. “Will crypto-to-crypto trades on exchanges also be reported, like bank accounts, in the future?”
This involves CARF (the Crypto-Asset Reporting Framework), introduced by the OECD in 2022. CRS reporting applies to financial institutions and financial accounts that meet the relevant definitions. CARF, by contrast, requires qualifying crypto-asset service providers to identify users’ tax-resident status and report annual totals for exchanges between fiat currency and crypto-assets, crypto-to-crypto transactions, and certain asset transfers. Since 2026, some early-adopting jurisdictions, including the United Kingdom, have begun collecting CARF data and plan to make their first reports and exchanges in 2027. The Hong Kong SAR Government also proposed CARF-related amendments in May 2026. Subject to passage of the bill, it plans to require qualifying crypto-asset service providers to conduct customer due diligence and collect information from 2027, with the first cross-border exchanges to begin in 2028.
However, according to the OECD’s list of jurisdictions committed to implementing CARF, updated as of September 14, 2026, mainland China is not on the list. This means that Hong Kong’s implementation of CARF alone does not justify concluding that the relevant information will automatically be exchanged with mainland China under the CARF mechanism. But this also does not rule out the possibility that mainland China and Hong Kong may exchange tax-related information on crypto-assets through separately concluded or improved tax information exchange arrangements, provided there is an appropriate legal basis and process.
At this point, I reminded Ajie that in the self-review ahead, he had to distinguish clearly between three things: “information reporting,” “withdrawing funds,” and “tax obligations.”
Being included in information reporting does not mean that every transaction creates the same tax obligation: Whether it is the gross redemption amount reported under CRS or future CARF reports aggregating crypto-to-crypto conversions by asset type and transaction category, this is only the scope of information collection and reporting. It does not determine tax types, rates, the point at which income is realized, or the deduction of losses for any country. Whether income is taxable, when it must be recognized, and how costs are calculated must all be determined under the applicable tax law.
Not withdrawing funds does not mean there is no tax obligation: For Chinese tax residents who are subject to tax on their global income, if taxable income has arisen under the tax law, there may still be a reporting obligation even if the funds remain in an overseas account or on-chain and have not been withdrawn.
The act of withdrawing funds itself does not mean that the entire amount is taxable income: A withdrawal may be subject both to a bank anti-money-laundering review (to verify the source of funds) and to a tax data comparison (to check for discrepancies between overseas income and tax filings). But transferring one’s own funds and realizing investment income are different in economic substance. So there is no need for everyone to panic: the amount withdrawn is not automatically treated as taxable income.
II. Clues in the pinned post: Public traces and the source of income
Having clarified the underlying logic of account reporting, Ajie’s gaze returned to the Twitter page on the phone to his left.
“Since CRS doesn’t report specific transaction counterparties, when I explain things to the tax officials next week, I’ll just say that all the money in my Hong Kong account is principal I saved up years ago. As for my Twitter account, it uses an English name and an anime avatar anyway, so it shouldn’t have anything to do with a tax review, right?”
I reached over and scrolled through his Twitter profile. Over the past three years, Ajie had posted numerous screenshots of his holdings, individual trade confirmations, and monthly return charts. In spring 2026, he had also shared an overview of his account assets that concealed his name but left the amounts visible. His bio had long included an exchange referral code, and every month he took on two or three projects promoting clients’ Twitter Spaces and sponsored long-form posts.
Under normal circumstances, this public content has no bearing on CRS reporting by banks. Whether he posts screenshots of his trades does not change CRS reporting obligations, the scope of information exchanged, or the frequency of exchange. But if the matter later proceeds to a tax review and an interview to provide explanations, platform interfaces, trade dates, position sizes, and profit amounts shown in public trading posts, as well as public promotional links, referral codes, and records of project collaborations, can all provide leads for further verification. Of course, the authenticity of screenshots, account ownership, actual receipts, and the truthfulness of personal statements all need to be checked against account records, settlement statements, and tax filings. Tax officials also cannot presume an outcome based solely on online screenshots. But if publicly available records of trading and commercial activity clearly conflict with the explanation of funds submitted by the individual, that will undoubtedly make the review and explanations more complicated. That’s something nobody wants to face.
What Ajie especially needed to clarify was the “source of income” for referral commissions and advertising fees.
“My referral commissions are settled in USDT by overseas platforms, and the project teams pay the advertising fees directly into my on-chain wallet. I eventually cash them out in Hong Kong—surely that counts as foreign-source income, right?” Ajie asked.
“When you write promotional long-form posts, host Twitter Spaces, and provide promotional services in your communities, where are you physically located?” I asked in return.
“At home in Hong Kong and Chengdu, and sometimes I go to Hangzhou, Shanghai, and Shenzhen.”
Little-known fact: As long as you are a Chinese citizen and your household registration has not been canceled, you have to pay tax on your overseas income. It doesn’t matter whether you have an EP, PR, permanent residency, or live and work overseas long term.
“Then you can’t classify this money as foreign-source income solely because it was paid by an overseas platform, settled in USDT, or received in a Hong Kong account.” I opened the text of Article 3 of the (Implementing Regulations of the Individual Income Tax Law): unless otherwise provided by the State Council’s finance and tax authorities, income earned from providing services within China in connection with an appointment, employment, contract performance, or similar activities is considered China-source income, regardless of whether the payment is made inside or outside China.
Ajie paused. He had always assumed that as long as funds were settled and transferred overseas, they were only foreign-source income. He had not realized that if he performed the contract and provided promotional services in China, the referral commissions and advertising fees would very likely be treated as China-source income under the rules. As he carried out a self-review for the 2022–2024 tax years, he might also discover unreported China-source commercial remuneration.
In addition, posting referral links also raises compliance responsibilities under financial regulations. The (Notice on Further Preventing and Handling Risks Relating to Speculation in Virtual Currency Transactions), issued in 2021 (Yin Fa [2021] No. 237), was superseded on February 6, 2026, by document Yin Fa [2026] No. 42. Past and current conduct must be analyzed separately under the applicable rules in force at the relevant time. Among other things, Item 18 of Yin Fa [2026] No. 42 continues to make clear that domestic entities and individuals who knowingly or reasonably should know that an overseas entity is illegally providing virtual-currency-related services to people in China, yet still assist it, will be held liable in accordance with the law.
III. The HKD 800,000 received in October 2024: Four sources of funds behind the statement
After the rain stopped, we returned to the meeting room at the office. Ajie used the HKD 800,000 credit that appeared in the October 2024 self-review period as a sample and asked me to go through it with him from beginning to end.
On the surface, the Hong Kong bank statement showed just one credit entry: Credit - HKD 800,000.00. But when we traced back through the platform’s conversion records, subaccount transfers, and on-chain hashes, we found that the approximately 102,000 USDT corresponding to this HKD 800,000 was made up of four sums with different origins:
First portion (approximately 35,000 U)—proceeds relating to an earlier investment: In early 2023, Ajie transferred a sum of money into his Hong Kong account and invested it in the crypto market. Over the nearly two years that followed, the money went through multiple trades and transfers between wallets. Ajie had assumed that as long as his cumulative withdrawals did not exceed his initial investment, everything he withdrew was simply “a return of principal.” But for tax calculations, the original investment is a source of funds, while the acquisition cost of an asset is a tax-calculation matter; the two cannot be treated as interchangeable. After funds have gone through multiple trades, a withdrawal cannot be called a return of principal simply because cumulative withdrawals have not yet exceeded the initial investment. The chain of asset transfers, the specific acquisition costs, and the gains or losses on the transactions all need to be verified again.
Second portion (approximately 30,000 U)—proceeds from the sale of assets: This was money he received after closing a position in an altcoin swing trade in September 2024. The 30,000 U was the gross proceeds from selling the asset, not the net gain after deducting costs. But he could not immediately find the average purchase price when he opened the position or the details of the transaction fees. Under the general tax rules for transfers of property, if documentation of the original value is incomplete and the original value cannot be determined in accordance with the rules, the cost is not automatically treated as zero; the competent tax authority will determine the original value in accordance with the law. Therefore, finding all records of acquisition costs and transaction expenses is essential to accurate calculations.
Third portion (approximately 22,000 U)—promotional commissions: These were promotional commissions transferred from the exchange’s referral-commission subaccount following settlement in the third quarter of 2024. The relevant settlement period, platform statements, and records of services performed need to be checked.
Fourth portion (approximately 15,000 U)—proceeds from the sale of tokens (the tokens were received for promotional services): In the first half of 2024, he promoted a DeFi project on Twitter. The two sides confirmed the collaboration only in Telegram, after which a third-party wallet address paid him 50,000 project tokens. After holding them for four months, he sold them on a decentralized exchange in October 2024, received 15,000 U, and included it in this withdrawal. Note that the 15,000 U was the proceeds from selling the tokens later; it is not the same as the advertising remuneration, valued in U, when he received the tokens. When organizing the records, the promotional-service remuneration at the time the tokens were received must be verified separately from the income and cost relating to their subsequent disposal.
Looking at these four different sources of funds, Ajie realized how much work it would take to sort everything out and find supporting evidence.
In practice, there may be reasonable supporting documentation for advertising fees paid by a third party, loans, gifts, or funds collected on someone else’s behalf. A payer whose name differs from the account holder means, among other things, that the verification is not yet complete.
To make sense of the historical transactions for 2022–2024, I suggested that Ajie add two columns to his spreadsheet—“Nature of Funds” and “Verification Status”—and keep a record using both dimensions at the same time:
According to the tax authorities’ publicly available risk-response mechanism, concerns about overseas income are typically addressed first through reminders and urging taxpayers to make corrections; discovery of an issue does not automatically lead to a formal tax investigation. Confirming tax-resident status using the approach above and establishing links among “source of funds—asset transfers—tax filings” can help Ajie respond to inquiries, avoid counting transfers between accounts with the same name more than once, and correct filings as required by law for any genuinely underreported or misreported domestic or overseas income. But organizing the accounts is only preparatory work to help reconstruct the facts and respond to an inquiry.
IV. Timing across bull and bear markets: When taxation begins
At one in the morning, the trams on the streets of Admiralty had long since stopped running. Ajie sat at his computer, looking through bank transfer slips from two years earlier and historical hashes on a block explorer, page by page.
The cold light from the screen fell across his face. Just organizing this HKD 800,000 transaction from October 2024 had made him see the reality of the situation: the bank statement could prove that the money had entered the account, but how should it be reported? How should he explain it? It was a real brainteaser.
What was worse, there were so many other remittance entries on his bank statements. What was he supposed to do?
He knew this time it would be much more than just losing a layer of skin.
Note: This article is for academic research purposes only. If you have questions, please consult a professional. DYOR
Appendix: FAQ on Crypto-Asset Tax Compliance and Practical Details
Q1: Is the “gross proceeds from the sale or redemption of financial assets” reported for CRS investment accounts the same as the investment profit I have to pay tax on? No. For custodial and investment accounts, the CRS-reported “gross proceeds from the sale or redemption of financial assets” (Gross Proceeds) means the total amount received from selling or redeeming the relevant financial assets during the year. Although the Hong Kong Inland Revenue Department’s CRS guidance allows commissions and fees related to the sale or redemption to be taken into account when calculating this amount, the key distinction is that it does not deduct the original purchase cost of the assets (their cost basis). Similarly, future CARF reports on crypto-asset conversions and transactions will aggregate transaction volumes by asset type and transaction category; they will not report net taxable income. In actual tax determinations, transaction amounts are not the same as taxable income. The asset acquisition cost, transaction expenses, and nature of the income all affect the final tax calculation.
Q2: How can I avoid double-counting income when transferring funds between my personal accounts at different exchanges, on-chain wallets, or banks with the same account holder name in Singapore, Hong Kong, or mainland China? Transfers of a person’s own funds between accounts held in the same name do not generate new taxable income in economic substance. But multiple transfers across institutions and jurisdictions can inflate the amounts appearing as inflows in account records.
On cross-border transfers such as “Singapore–Hong Kong–mainland China”: No matter how many times funds are routed through Hong Kong or elsewhere, this does not change the nature of the original income (wages, historical savings, investment returns, or promotional remuneration) or the tax obligations attached to it. Nor does it break the chain through which Singapore and Hong Kong each exchange annual account information with the jurisdiction where the account holder is tax resident under their respective local CRS rules. In addition, working in Singapore does not in itself mean that you are no longer a tax resident of mainland China. This needs to be assessed based on factors including domicile in China, days of residence, and applicable tax treaties. If you remain a mainland China tax resident, income from work in Singapore must be reported in mainland China in accordance with the rules. Singapore income tax paid may be credited within the applicable credit limit if the requirements are met; the relevant exemption applies if you qualify for the exemption on foreign-source income available to individuals without domicile in China.
Evidence to avoid double counting: Since the level of detail in annual CRS exchanges does not include complete, itemized remittance records, when dealing with a bank’s anti-money-laundering review (which may ask for payslips, employment contracts, tax payment certificates, or investment records) or a tax verification, individuals should export the debit slips from the sending bank, the credit slips from the receiving bank, and proof of the original source of the funds. By matching timestamps, currencies, and amounts, they can show that multiple interbank transactions were transfers of the same funds.
Q3: How likely is it that deposits and withdrawals through a Hong Kong bank will trigger a tax review? What is the difference between using a Hong Kong-licensed platform such as HashKey and using an exchange for C2C deposits and withdrawals?
On the likelihood of a review: There is currently no public data that can be used to quantify an individual’s likelihood of being reviewed by the tax authorities. What is certain is that if an account is identified as a reportable account held by a mainland China tax resident, the Hong Kong bank will report CRS data annually and exchange it with the mainland tax authorities, whether or not funds are deposited or withdrawn. The tax authorities will use CRS and other information to compare account data with tax filings.
On Hong Kong-licensed platforms: It is necessary to distinguish an institution’s regulatory status from an individual’s eligibility to use its services. “Licensed” describes a platform’s regulatory status in its jurisdiction. An individual’s ability to open an account and use its services must also meet the applicable customer eligibility requirements. For example, HashKey has stated officially that it does not provide services to users in mainland China. At the same time, Chinese tax-resident status cannot be equated directly with a platform’s customer eligibility requirements. An individual’s actual residence, the specific legal entity providing the services, and the platform rules in effect at the relevant time still need to be verified.
On C2C deposits and withdrawals through exchanges:
Risks relating to fund channels and counterparties: If payments are made or received through a mainland bank card or payment account, they constitute domestic fund transfers. Although they do not pass through the CRS channel, domestic banks and payment institutions retain transaction records that may lawfully be used for anti-money-laundering, anti-fraud, and tax reviews. An account may also be restricted or frozen, or the account holder may be asked to assist with an investigation, if they receive third-party funds connected to fraud or money laundering. If payments are made or received through the individual’s own Hong Kong bank account, CRS obligations must still be assessed based on the account holder’s tax-resident status.
Determining whether the platform has a CARF reporting obligation: Labeling a transaction “C2C” does not automatically exclude it from CARF reporting, but the label alone does not prove that it must be reported either. It is necessary to check whether the platform qualifies as a reporting service provider under the rules, whether it has the required connection to a jurisdiction implementing the rules, and whether the specific transaction and user fall within the scope of reporting.
Q4: How are the tax categories, costs, and loss deductions for individual crypto-asset transactions and KOL promotional income determined in mainland China?
Crypto-asset transactions: Although there are earlier rulings concerning income from the resale of online virtual currencies (such as Guo Shui Han [2008] No. 818), they cannot be applied indiscriminately to today’s diverse forms of crypto-asset transactions. The available materials do not establish a single, nationally uniform tax category, loss-deduction rule, or method for accepting cost evidence applicable to the crypto transactions described in this article. If the analysis involves the general rules for “income from the transfer of property” under the (Individual Income Tax Law)—a 20% tax rate, with taxable income calculated as the proceeds from the transfer minus the original value of the property and reasonable expenses—relevant regulations provide that when a taxpayer has not supplied complete and accurate documentation of the original value and it cannot be calculated correctly, the competent tax authority will determine the original value. Whether losses across different periods or types of transactions can be deducted, and how records from overseas platforms and on-chain data are accepted, must still be assessed on a case-by-case basis in light of Chinese tax law and regulations governing virtual assets.
KOL referral commissions and advertising income: The tax category should be determined based on the actual business activities, not selected according to which tax rate is lower. In practice, the income may be classified as “income from remuneration for personal services” (included in comprehensive income and subject to progressive rates of 3%–45%) or “business income” (subject to progressive rates of 5%–35%). Under the (Implementing Regulations of the Individual Income Tax Law), business income includes not only income from the production and business operations of individual industrial and commercial households, sole proprietorships, and partnerships, but also income earned by individuals from other production and business activities. Relevant facts for determining the nature of income include business registration status, how contractual obligations are performed, whether the business activity is continuous, and the accounting records for costs and expenses.
Appendix: Legal Basis for Cross-Border Tax Information Exchange
Local Hong Kong legislation: Hong Kong’s (Inland Revenue (Amendment) (No. 3) Ordinance 2016) came into effect on June 30, 2016. It added Part 8A and related schedules to Hong Kong’s (Inland Revenue Ordinance) (Cap. 112), requiring reporting financial institutions to conduct account due diligence and report information. In particular:
Section 50B and Schedule 17D: Set out due diligence requirements for reporting financial institutions, including the review of individual accounts and the identification of controlling persons of passive non-financial entities;
Section 50C: Sets out the obligation of reporting financial institutions to submit returns;
Section 50F: Specifies the reporting fields to be included in returns, including name, address, jurisdiction of residence, tax identification number, account number, year-end balance or value, interest, dividends, and gross proceeds from the sale or redemption of financial assets;
Schedule 17E: Lists the “reportable jurisdictions and participating jurisdictions.”