Will Chinese residents be taxed on crypto assets held after the implementation of CARF?

Writing: FinTax

The Basic Impact Logic of CARF

As CARF advances, tax authorities in various countries will significantly enhance their ability to obtain overseas cryptocurrency asset information.

CARF does not establish tax rules but enables automatic information exchange, allowing tax authorities to identify income from cryptocurrency assets earned by their tax residents abroad.

Based on information transparency, the practice of collecting back taxes and enforcing laws on undeclared income may become routine.

For countries that have committed to joining CARF and have enacted legislation to implement it, information about tax residents’ accounts and transactions in overseas exchanges will be exchanged between tax authorities through the CARF mechanism. Tax authorities can compare this data with tax declarations and impose penalties for underreporting or non-reporting.

Countries that have joined CARF: Can be traced back after information transparency

Taking the UK as an example, starting from 2026, the UK has required local cryptocurrency service providers to systematically collect user transaction data for tax verification. Her Majesty’s Revenue and Customs (HMRC) has explicitly stated that it will cross-reference this data with individual tax records. If undeclared cryptocurrency income is found, taxes will be recovered and fines imposed according to law.

In such jurisdictions, once cryptocurrency transaction information enters the tax authorities’ view through CARF, there is a real risk of retrospective taxation on previously undeclared overseas crypto income.

Key Risk Point: Cryptocurrency Asset Realization

Mainland China has not yet joined CARF, and tax authorities cannot automatically obtain information about Chinese residents’ cryptocurrency accounts held on overseas exchanges through CARF in the short term. Under current policies, the risk of being directly discovered and taxed by domestic tax authorities solely due to holding cryptocurrencies overseas is relatively low.

However, this judgment applies only to cryptocurrencies remaining within the crypto ecosystem. Once cryptocurrencies are exchanged for fiat currency and enter bank accounts or other financial account systems, the risk pathways change.

Mainland China has implemented CRS nationwide since 2018 and has engaged in automatic exchange of financial account information with multiple jurisdictions. Under the CRS framework, Chinese tax authorities have actual enforcement precedents for recovering taxes through overseas financial account information.

Therefore, even if Mainland China has not yet participated in CARF, once cryptocurrencies are realized through overseas exchanges and stored in financial accounts, relevant information may still be transmitted back to domestic tax authorities via CRS or other channels.

Existence of Other Tax Information Channels

Under current tax treaties and enforcement cooperation mechanisms, tax authorities in various countries can exchange specific taxpayer information through case investigations and cooperation.

If foreign tax authorities discover large-scale tax evasion or illegal transactions involving Chinese residents during enforcement, relevant clues may also be provided to China through bilateral mechanisms.