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

Author: FinTax

Basic Impact Logic of CARF

With the advancement of CARF, tax authorities in various countries will significantly enhance their ability to obtain information on overseas crypto assets.

CARF does not establish tax rules but enables tax authorities to identify income from crypto assets obtained by their tax residents abroad through automatic information exchange.

Based on transparent information, it will become routine to impose back taxes and enforce laws on undeclared income.

For countries that have committed to join CARF and have enacted legislation to implement it, the crypto asset accounts and transaction information of tax residents on overseas exchanges will be exchanged among tax authorities through the CARF mechanism. Tax authorities can compare this data with tax declarations to penalize underreporting or non-reporting.

Countries that have joined CARF: Information Transparency May Lead to Retroactive Taxation

Taking the UK as an example, from 2026 onwards, the UK requires local crypto asset 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 crypto asset income is found, taxes will be collected and fines imposed according to law.

In such jurisdictions, once crypto asset transaction information enters the tax authorities’ view through CARF, there is a realistic risk that previously undeclared overseas crypto income could be subject to retrospective taxation.

Key Risk Point: Crypto Asset Realization

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

However, this judgment applies only when crypto assets remain within the crypto ecosystem. Once crypto assets are exchanged for fiat currency and enter bank accounts or other financial account systems, the risk pathway changes.

Since 2018, Mainland China has fully implemented CRS and has engaged in automatic exchange of financial account information with multiple jurisdictions. Under the CRS framework, Chinese tax authorities already have practical enforcement precedents for collecting taxes through overseas financial account information.

Therefore, even if Mainland China has not yet participated in CARF, once crypto assets 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.

The Reality of Other Tax Information Channels

Under existing 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 leads may also be provided to China through bilateral mechanisms.