China's Shanghai Tax Administration has issued a new directive requiring the payment of personal income tax on gains from buying and selling virtual currencies online.
The directive titled “Answer Concerning the Collection of Personal Income Tax on the Income Earned by Individuals from Buying and Selling Virtual Currency on the Internet” created controversy due to its ambiguous statements.
The document states that people who buy virtual currencies from online players and sell them to others at a higher price must pay personal income tax. The tax will be calculated and paid according to the item “Income from Transfer of Ownership”. However, the directive does not clearly state whether this applies only to traditional online gaming tokens or whether it also covers cryptocurrencies such as Bitcoin.
In a related development, Zhao Xuejun, associate professor of Hebei University School of Law, was quoted in the January 1 issue of Legal Daily, published by the Central Commission for Political and Legal Affairs of the Communist Party of China.
Zhao noted that virtual money and electronic gift cards have become “secret channels” for bribery. According to Zhao, these cards and digital currencies can be stored in “cold storage” devices and transported abroad for use, making them a potential avenue for illicit activities.
*This is not investment advice.