As this conversation unfolds , global interest in crypto-asset regulatory compliance continues to intensify, with countries increasingly strengthening the exchange and tracking of tax information regarding on-chain assets, offshore accounts, and cross-border transactions. In this conversation, Calix and William, drawing on their respective cross-border tax practices and on-chain business experience, discussed hot topics such as global crypto-asset tax compliance, tax arrangements, and regulatory negotiations. The two speakers also shared their vision for the ideal future Web3 tax system and, drawing on real-world examples, discussed taxation principles in various scenarios, including exchange compliance, DeFi, mining, and airdrops.
Who should pay taxes on cross-border income?
Calix: I'd like to start with a heartfelt question. You also engage in mining, and your company sometimes pays bonuses in cryptocurrency. How do you typically handle your tax obligations on this type of income?
William: This is a very practical question. I agree with your earlier point: since we enjoy the infrastructure and business environment provided by a particular country or region, fulfilling our tax obligations is inherently reasonable. However, the reality is more complex. For example, our company's clients are located in multiple markets, including North America, Europe, and the Middle East. This revenue relies on conditions in multiple locations, making it difficult to attribute it solely to a single location.
Although I mainly deal with American clients and most of my income comes from the US market, it is actually difficult to have a definite answer as to who should pay this tax.
Generally speaking, I do have the intention to pay taxes, but it's not so easy to say who should pay this kind of income. After all, the formation of this income does not entirely depend on where I am.
Calix: I think your answer really hits the nail on the head. The Web3 project itself is multinational and multi-regional, making it difficult to accurately attribute revenue to a single location. Economic activity is closely tied to both the source of customers and the platforms, networks, and infrastructure used. Therefore, who should ultimately pay this tax is a question worth exploring in depth.
Honestly, despite having been involved in tax-related work for years, I've always been confused by this question. Under current tax law, I might be a mainland Chinese tax resident and potentially subject to Singaporean tax obligations. However, my business primarily focuses on North America, and I sometimes receive payroll through a Hong Kong company. If I strictly adhere to tax regulations, the answer might appear clear on the surface, but determining which approach is more reasonable is truly worth considering. For Web3 practitioners, these discussions often go beyond the scope of traditional tax frameworks.
William: Exactly. I think the core issue is that the global tax regulatory system is evolving at a pace that is truly difficult to keep up with technological and industry developments. Regulators are constantly trying to catch up, but industry changes and technological innovations always outpace them. This "playing catch-up" dynamic is likely to persist for a long time, and the relationship between regulators and industry is always a dynamic balance.
Case Study: Tax Payment for Individuals Speculating in Cryptocurrency in Mainland China
Calix: There have been two hot topics on Twitter in the Chinese community recently. One is an announcement from the Zhejiang Tax Bureau regarding an individual who was ordered to pay back taxes for cryptocurrency trading. We later learned through various channels that, following the CRS information exchange, the tax bureau discovered an unusual balance in the individual's overseas bank account and requested an explanation of the source of the funds. He explained that the balance was investment income, and that this investment involved cryptocurrency, which was why he was required to pay back taxes.
For me, this case isn't surprising. After all, this is my area of expertise, so I find it quite normal and representative. William, you've been working on on-chain projects like DeFi and mining. What do you think of this case?
William: It's indeed quite representative. We had predicted long ago that cryptocurrency speculation would eventually be subject to taxation. But when it actually happened, it was quite a shock, especially for many Chinese people. Traditional DeFi and other purely on-chain activities have always been difficult to regulate, often relying on user awareness. In the past, there were indeed some regulatory obstacles, which led to tax authorities not having strong enforcement power over these relatively niche, decentralized, and difficult-to-trace on-chain activities.
I think the reason this is happening so timely is related to other trends in the industry. Recent reports indicate that some US stock investors have received text messages or phone calls demanding back taxes, suggesting that regulators are beginning to more closely track individuals' overseas income, with the first hurdle being overseas securities investments.
The logic behind this is clear: the intersection between the US stock market and the crypto is growing. From Robinhood to Asian firms like Tiger Brokers and Futu, and even Guotai Junan International, many brokerages are now dealing with crypto assets, making the connection between US stocks and crypto assets difficult to separate. A comprehensive review of foreign income, simply by examining US stocks, easily includes the crypto, not to mention the already significant volume of crypto assets.
Moreover, this "stock-to-cryptocurrency integration" isn't a short-term phenomenon. For example, in the United States, some companies are experimenting with tokenizing US stocks. In Asia, crypto assets are being incorporated into listed companies to drive stock prices, generate premiums, and boost secondary market performance. This integration is driven by profit. Whether converting stocks into cryptocurrencies or cryptocurrencies into stocks, it further strengthens the connection between the two, making the "taxation of cryptocurrency trading" inevitable.
In general, crypto assets and the stock market are already highly interconnected. As this trend continues to develop, the tax issues surrounding cryptocurrency trading will become increasingly rigid, and the room for avoidance will become smaller and smaller.
Calix: This perspective is indeed quite novel. I haven't thought deeply about the "stock-to-currency linkage" before. After all, when it comes to stock investing, everyone is accustomed to paying taxes on the market where the money is earned. Whether it's capital gains tax or business income from quantitative investing, the framework is relatively clear.
However, when it comes to cryptocurrencies, some regions, particularly mainland China, still have ambiguity regarding whether and what taxes should be paid. However, the evolution of the stock and token businesses reveals a very instructive path, reminding us that this is a new issue that requires long-term attention.
The long-term game between regulation and tax avoidance
William: Based on your many years of frontline tax experience, now that this has happened, do you think some people will avoid cryptocurrency due to concerns about tax risks? Or will some still find ways to avoid taxes, or even simply not file taxes, and continue to trade heavily in the crypto? What impact will this have on the overall industry landscape?
Calix: This is a typical, real-world problem. I've always believed that regulation and resistance to regulation are constant, not just in the crypto world but also in traditional industries. Tax authorities, or any regulatory body, naturally want to collect as much tax as possible. Meanwhile, taxpayers, regardless of region, all hope to legally save or reduce their tax burden. These two demands are inherently conflicting.
In my experience, this dynamic is very similar to the contradictions etched into human nature: a constant cycle of conflict, balance, conflict, and balance. In recent years, regulatory measures have become increasingly diverse, and technological approaches have become increasingly digital. For example, in mainland China, tax regulatory capacity has indeed improved rapidly in recent years, with increasing levels of information technology. But at the same time, tax evasion methods have also evolved. In the early days, they might have been limited to traditional methods like cash transactions, concealed income, and money laundering. When I refer to "tax evasion" here, I'm referring to non-compliant tax evasion.
The advent of cryptocurrency provided some taxpayers with a new avenue for maneuver. For a long time, cryptocurrency proved difficult for tax authorities to track. Even when some regulators had on-chain tracking capabilities, the enforcement was often insufficient. As a result, some individuals experienced significant benefits during this period.
However, the key to the future still lies in scale. For example, in the early days of the crypto(2013 to 2017), many large mining farms and miners attached great importance to financial and tax compliance, which was the bottom line of their operations. However, there were also large-scale players who were still willing to take the risk of tax evasion. These two situations have always coexisted.
From a trend perspective, while compliance was less emphasized in the early, "grassroots" stages, more and more large institutions are prioritizing compliance today. After all, in mainstream markets like Hong Kong, Singapore, Europe, and the United States, regulators, especially tax authorities, are gaining a deeper understanding of crypto assets, and this is an irreversible trend.
As for individual investors, such as retail investors or Web3 project employees, compliance depends more on the actual amount involved. For small-scale investors, completing the necessary reporting procedures is sufficient. Enforcement also needs to consider cost-benefit ratios, unless there are exemplary cases, such as the recent Twitter discussion of "overpaying over 100,000 yuan in taxes." While the amount involved is not large, it serves as a warning.
So overall, large institutions will only attach more and more importance to compliance, because it is the prerequisite for sustainable operations; and for individuals on the C-end, just like in the real world, it is essentially directly related to the amount of money.
The boundary between illegal income and asset compliance
William: I think there's another interesting point here. Many people believe that paying taxes is, to some extent, a way to prove the legitimacy of property or income. However, in the crypto, to put it bluntly, there's a lot of "leek-cutting" (scamming), which, in legal terms, refers to illicit financial operations. These practices can also generate high returns. So, if these people pay taxes as required, does that, in a sense, constitute using taxes to "launder" essentially illicit funds? This question might be a bit sensitive. What are your thoughts?
Calix: That's a very good question. I often ponder this boundary myself. I believe that whether or not taxes are paid only proves that tax obligations have been met, but it doesn't fundamentally prove that the funds are legal in a broader sense. If the funds themselves violate other financial regulations, such as those of the SEC, or involve financial misconduct such as fraud, even if the taxes are paid, it will not affect the penalties and tracing back to the source of the funds by other regulators.
For example, if the funds are involved in money laundering, organized crime, or gray market activities, and thus fall foul of international anti-money laundering regulations, or if the individual in Hong Kong violates local customs, the Hong Kong Monetary Authority, or other laws, then paying taxes in Hong Kong does not simply mean that the funds are no longer considered "black money." Tax compliance and the legitimacy of funds are two separate legal issues and cannot be simply equated.
William: I agree. I'd like to add that I've always felt that the issue of taxation should have been discussed earlier. Taxation can only be discussed if an asset is legal. If the money can't even be effectively verified as an asset, it can't even be considered valuable property, and therefore, there's no question of declaring or paying taxes.
In China, this area has been relatively vague, primarily because the legality of assets themselves has often been unclear. This makes it difficult for people to establish tax compliance and for regulation to truly take hold. However, globally, especially in most developed countries and regions, the legality of crypto assets is relatively clear. Once their legal status is established, local tax authorities will require tax obligations on these incomes.
For many Chinese individuals, if this money is definitely taxable overseas income, it's theoretically difficult to completely circumvent it. The fact that this is happening now is also related to gaps in international regulations. In the past, people believed that blockchain technology, with its technical barriers and high secrecy, would make it difficult for regulators to track, leading to this "illusion." However, a clear trend now is the development of RegTech (regulatory technology). This is continuously improving regulators' information access and data analysis capabilities, and many service companies are also providing support. This will significantly bridge the information gap between regulators and the industry.
Crypto tax planning space for businesses and individuals
William: I'd like to ask you a practical question. Since it's difficult for ordinary users to completely avoid this tax, is it still possible to engage in tax planning through compliant means? Based on your experience, is there much room for tax planning for businesses and individuals in the crypto?
Calix: Let me offer a rather heartbreaking conclusion on this topic: For most ordinary people, tax planning opportunities are actually very limited. This is primarily because their income sources are relatively limited: primarily salary, bonuses, and some small subsidies. These are all fully documented by the company. Once the company declares the income accurately, there's little room for individual "optimization."
Therefore, for ordinary individuals, the most effective approach is to fully utilize the preferential policies already existing in local tax laws, such as exemptions, child support, elderly care, and marriage deductions. Taking full advantage of these basic exemptions and making thorough compliance declarations is already considered the "optimal solution."
William: Yeah, it does sound like there is limited space.
Calix: But for high-net-worth individuals or corporations, the situation is different. Their income patterns and structures are typically more complex, with diverse sources, larger transaction volumes, and more cross-border tax issues. This diversity and complexity naturally creates more room for maneuver.
Simply put, different types of income are subject to different tax rates and methods of collection. For example, wages are fully taxed, while capital gains or dividends often have more favorable tax rates or exemptions. Add to this the differences in tax systems across regions, such as mainland China, Hong Kong, Singapore, the United States, or Canada. The significant differences in system design and tax burdens between these regions create 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 in text, often leaving some gray areas within the legal text. High-net-worth individuals and large institutions have ample resources and professional advisory teams to research and exploit these areas, maximizing their tax burden within the legal framework.
This is also why I have always felt that the middle class is actually one of the hardest-working groups: their income seems not low, they work hard in companies or large factories, with annual salaries of hundreds of thousands and often work overtime, but their income structure is single, their room for maneuver is limited, and there is very little room for tax savings; in comparison, high-net-worth individuals and large institutions earn more and have more operational tools.
Therefore, no matter which country, the middle class is usually the group that is the focus of tax attention - their income exceeds the sensitive threshold, but they do not have enough resources to hedge legally, and are the most likely to be "precisely targeted" in execution.
Potential tax obligations and optimization opportunities for mining, airdrops, DeFi, and other income
William: Calix, I find the income structure you mentioned interesting. In the past, income sources were relatively simple: salaries and bonuses. But the crypto has provided many middle-class and ordinary people with more diverse income channels, such as mining, airdrops, staking, and DeFi income. For example, a mining rig might only cost $2,000, making several affordable for the middle class and considered a small "enterprise." This type of income introduces new complexities. Could you briefly explain the tax implications of different income streams?
Calix: I think instead of talking directly to everyone about "how to pay taxes", it is better to say a little more and see if there is some legal space in these behaviors. Although this topic is indeed sensitive, I think it is still worth talking about briefly.
Many ordinary people may seem to have multiple income sources, but from a tax perspective, the core issue is that the main source of income is generally you, without the multi-layered structure of a trust, company, or foundation to distribute the tax burden. For example, mining is considered business income in most jurisdictions. Airdrops, if received but not disposed of, generally do not trigger tax obligations for the time being. Only after converting them into fiat currency or exchanging them for tokens, generating actual returns, do they need to be reported. In some jurisdictions, staking or DeFi income can be considered capital gains, and capital gains tax rates are generally lower than business income, and in some jurisdictions, capital gains are not levied at all.
Therefore, there is indeed room for "reasonable definition" in this area. For example, can certain high-tax operating income be reasonably interpreted as capital gains or other preferential tax rates according to local tax laws? However, this assumes that tax laws leave some uncertainty and that regulatory enforcement cannot fully and accurately track on-chain activities. Otherwise, once data is available, the space will be greatly reduced.
Essentially, large-scale tax planning isn't realistic for the average person, as all income is recorded in their own name, making it easily categorized as business income or a higher-taxed category. In contrast, activities like airdrops and forks, if permitted by local policies, may qualify as lower-taxed or deferred. Many are exploring how to rationally convert high-taxed items into categories with lower tax rates and more favorable treatment. This depends on whether local laws provide sufficient flexibility and whether the operations are compliant.
Realistic Considerations for Identity Planning for Digital Nomads
William: I'd like to follow up with another question: Many people in the crypto now call themselves "digital nomads." In the past, they might not have paid much attention to this, thinking that as long as they didn't engage in illegal activities, they could just file their taxes in China. But do you think that in the future, more people will proactively change their tax residency to a certain overseas region? For example, they might want to use a bilateral tax treaty to achieve the goal of "I pay taxes in Singapore, so I don't have to pay them in mainland China." Will this path become a more legal planning option for more people?
Calix: This is actually a fairly legitimate approach, leveraging different tax jurisdictions to reduce the overall tax burden. However, I'd also like to remind you that no matter where you file your taxes, you must always keep records of your deposits and withdrawals, as well as your transaction history. These will serve as crucial evidence during tax inquiries and avoid unnecessary hassles. Furthermore, with the global CRS (Automatic Exchange of Financial Account Information) system, it's difficult to completely "hide" information for an extended period. Looking at the broader trend, cross-border identity planning is something to consider, but in any case, complete information and records must be maintained, and what needs to be reported must be reported truthfully.
Let me add one more point. Taking the Singapore you mentioned as an example, a friend recently asked a similar question. He works in Singapore, earning income in USDT or fiat currency, and paying taxes locally. He asked if he still needed to file a tax return in mainland China. In his case, he spends less than 183 days annually in mainland China.
Under mainland Chinese tax law, the core criterion for determining whether an individual is a Chinese tax resident is "183 days." However, in more detailed regulations and practices, factors such as nationality, household registration, and primary social connections are also considered. If all of these points of contact are within China, even if you are overseas, you may still be considered a Chinese tax resident and need to complete a full reconciliation before deducting taxes paid. Furthermore, whether you hold a Singapore Employment Pass (EP), Permanent Resident (PR), or other status may also affect the outcome. There's no set template for this, so each case must be analyzed on a case-by-case basis.
William: So even if you don’t live in mainland China for a full 183 days a year, you can’t simply assume that it is completely “safe”.
Calix: Yes, things are not that absolute. There is a "tie-breaker rule" in international taxation, which will look at factors such as your family relationships, economic interest center, daily life trajectory, etc. to determine the main place of taxation layer by layer.
William: Yes, many people overlook this. Even if you're overseas and your visa or status is overseas, if your primary family and social connections are still in China, you'll often still be considered a Chinese tax resident under the "Gabi Rule," so you must pay special attention to this aspect.
Vision of the future crypto tax system
Calix: Finally, I would like to ask a more open question, which can be regarded as the end of this conversation.
From your personal perspective, as a long-time crypto practitioner or user, what kind of tax system do you think would be more user-friendly for Web3 users? In other words, what is your ideal and most anticipated tax model?
William: This question is somewhat based on my personal opinion and does not represent the position of any company.
I've always been a fan of the crypto-native concept of the "sovereign individual." I'm also quite idealistic, and I agree with the possibility of a "network state" as discussed by Vitalik Buterin and others. I believe that at some point in the future, this phenomenon will slowly take root somewhere in the world, and may even become an irreversible trend.
Over time, the infrastructure we rely on will likely shift increasingly from the physical to the digital world. For me, right now, it's probably 80% physical and 20% digital. However, in the future, digital infrastructure will undoubtedly have a greater impact on everyone than the traditional physical environment.
Just like the old saying in the internet world, "hardware is free, software is paid," manufacturers once gave away phones for free, but charged for content and services over the long term. I think the future will be similar: the "hardware" portion of the physical world may become less burdensome, while the "services" in the digital world will be the ones that require ongoing payment.
From this perspective, I agree with a point you made earlier: blockchain infrastructure relies on physical resources like electricity, networks, and chips. Miners and nodes consume these resources to provide network services, and their profits should bear the majority of the tax liability in the physical world. Individual consumers, on the other hand, enjoy the digital services provided by these nodes and miners, so they primarily pay "service fees" to the network through gas fees and other means. Miners and nodes then fulfill their tax obligations in the real world.
So in my ideal model, it would probably be a two-layer structure:
In the first layer, infrastructure providers (miners, nodes) pay taxes on the physical world;
At the second level, individual users pay fees to the network indirectly through gas fees, etc., which are then fed back to the real-world tax system.
In this way, as the proportion of human digital spending continues to increase in the future, the direct tax burden of the physical world will gradually decrease, and the blockchain network will be more like an autonomous micro-tax system, assuming corresponding real obligations through the gas mechanism and distribution structure.
Calix: I think this is a very imaginative and forward-looking concept. I also believe that as the crypto industry develops, it will inevitably carry an increasingly large amount of assets and its deep integration with traditional finance will accelerate. In the future, it may replace some inefficient and opaque aspects of traditional finance, which will inevitably require a new legal system and regulatory framework.
Many of the insights you shared today are very inspiring. As we work on our current business, we need to think more about what might happen in the future and even drive change wherever possible. I'd like to add a point about the direction of RWA. Currently, many assets are still being put on-chain through layers of packaging, nesting, and contract mapping, leaving a significant separation between on-chain and off-chain. This may just be a transitional phase. As the legal system improves in the future, asset information will be more directly and transparently transferred to the chain, and these complex nesting processes may gradually disappear.
