Legal regulations of cryptocurrency in China
Since October 2017, China has enacted a law that establishes the legal regulation of the country’s cryptocurrency. This act becomes the first legal document, which describes the principle of regulating cryptocurrency in China. In accordance with this Chinese law “General principles of civil law of the People’s Republic of China”, crypto termins will be considered as “virtual property”.
Earlier, in December 2013, China’s regulators banned banks from performing operations with cryptocurrency, in particular with bitcoin. And already in 2014, the People’s Bank of China issued a circular on closing accounts and banning the activities of crypto exchanges. Cryptocurrency, in particular Bitcoin was defined not as a currency, but as a virtual product.
These actions were related to the fact that the Chinese government considered the overwhelming majority of ICO projects risky for the consumer, since it could have a connection with illegal activities and the withdrawal of large cash flows from the country.
In the accepted statute it is mentioned that the recent wave of prohibitions on operations with cryptocurrency is not a complete ban on the use or possession of virtual currency. Also, it is said about the likely resumption of work of some major Chinese crypto-bricks, after the final check of the People’s Bank.
However, already in 2016, the People’s Bank of China announced the news about the opening of its own cryptocurrency.
Taxation of operations with cryptocurrency
Since the definition of cryptocurrency in China falls under the term of virtual goods the sale of virtual currency may be taxed by:
- Value-added tax
- Corporate Tax (the income and profit in the cryptocurrency are taxable)
- Individual Income Tax
- Capital Gains Tax
Registration of crypto exchanges
Registration of the crypto-exchange in China at this stage is complicated. Some experts believe that the main reason for concern of China’s regulatory authorities towards the ICO is the outflow of capital from the country. Therefore, the methods of resistance with such innovations in society are not yet completed. And, of course, the unregulated ICO, which, in the authorities’ opinion, may entail certain risks.
License for cryptocurrency
The license for cryptocurrency in China can refer to financial services. A license will be issued depending on your type of activity. However, due to the prevailing circumstances in the country regarding to the crypto-currencies, regulators warn about the possible revocation of licenses from companies that may be associated with the ICO.
For over five years we have been advising our clients in the field of corporate law, international tax planning, finance, international licensing and integrated business support in more than 40 countries.
SBSB monitors the latest trends and provisions of legislation in the field of operations with cryptocurrency and the use of electronic money in general, the organization of exchanges of currencies and online exchange systems, the maintenance of the procedure ICO (Initial coin offer).