The CRS tax for the cryptocurrency industry is coming; here are three practical tips for crypto enthusiasts.

Recently, many in the crypto community have asked me the same question: “I heard Hong Kong is about to start reporting crypto asset information. Are my holdings on overseas exchanges still safe? Will Mainland tax authorities find out? Do I need to pay back taxes?”

This anxiety is not without reason.

In 2025, global tax transparency will deliver a targeted strike on cryptocurrencies. As a Web3 legal specialist, today Attorney Honglin will explain the so-called “Crypto CRS”—the CARF (Crypto-Asset Reporting Framework)—and what it really means for your finances.

What Is CARF?

For the past decade, the traditional financial sector has relied on a powerful tool called CRS (Common Reporting Standard). Simply put, if you’re a Chinese citizen with deposits in an overseas bank, that bank will share your account information with Chinese tax authorities.

But CRS has a major loophole: it doesn’t cover crypto. Previously, you could convert funds to USDT and store them in a wallet, or trade on Binance and OKX, and tax authorities couldn’t see those assets.

Now the patch is here. CARF (Crypto-Asset Reporting Framework) is designed to close that gap.

The core logic: If authorities can’t track decentralized users, they’ll target the intermediaries serving them.

Who must report? Exchanges (CEX), OTC merchants, and some token issuers.

What gets reported? Your identity (name, tax ID), how much crypto you bought and sold, and the wallet address where you withdrew assets.

In practice, every transaction you make on compliant exchanges and service providers will be fully visible to tax authorities.

Under CARF, the following activities carry a high risk of tax exposure:

Stablecoin deposits and withdrawals (USDT/USDC): Don’t assume converting to stablecoins is safe. CARF explicitly requires reporting for both crypto-to-fiat and crypto-to-crypto swaps (e.g., BTC for USDT). Each swap could be treated as a “sale” for tax purposes, requiring gain/loss calculation and tax payment.

Large OTC transactions: In the past, users often relied on offline OTC for exchanging funds. Going forward, Hong Kong will regulate OTC merchants, who will also be required to report large transactions.

DeFi and airdrops: While DeFi is harder to regulate, protocols with clear controlling parties (e.g., project teams retaining admin rights), or DeFi mining through centralized exchanges, will see those earnings recorded.

Withdrawing to cold wallets: You might ask, “If I withdraw to a cold wallet and lock it up, am I safe?” Yes and no. Exchanges must record your withdrawal and the receiving wallet address. If that cold wallet ever interacts with fiat (for example, buying property, purchasing a car, or cashing out through an exchange), tax authorities can use on-chain analytics to trace the address back to you and reconstruct your transaction history.

A Common Misconception: “Crypto trading is illegal in Mainland China, so I don’t owe taxes.”

Mainland users are focused on CARF due to Hong Kong’s recent actions. While Hong Kong operates under “one country, two systems,” tax information exchange between Hong Kong and the Mainland has long been seamless.

According to Hong Kong government consultation papers published from late 2024 to early 2025, the timeline is clear:

2025–2026: Hong Kong enacts local legislation to establish tax rules.

January 1, 2027: Formal data recording begins. From this date, all transactions on licensed Hong Kong exchanges and OTC platforms will be logged in backend systems.

2028: Hong Kong’s tax authority will begin sharing this data with other countries’ tax authorities (including Mainland China). Hong Kong will shift from a tax haven to a hub for tax information exchange.

Many believe, “The government says Bitcoin trading is illegal, so if I’m not protected, why should I pay taxes?”

From a legal perspective, that’s not the case.

The key is that tax law looks at “substance”: Whether your income comes from legal sources (such as wages) or gray areas (such as crypto trading), if you earn money (“income”), you have a tax obligation.

Additionally, Mainland China has recently promoted “data-driven taxation.” Previously, tax authorities didn’t know about your overseas assets and couldn’t regulate them. Once CARF is implemented, Hong Kong will send your transaction data (e.g., Zhang San, Mainland ID xxx, earned 1 million USDT on an exchange in 2027) directly to Mainland tax authorities. The system matches the data—if you haven’t reported it, an alert is triggered immediately.

Three Practical Compliance Tips

With the wave of crypto tax transparency, panic is pointless—compliance is inevitable for the Web3 industry, and tax is a necessary part of compliance. In this sense, many have long anticipated this day.

To safely and confidently navigate crypto taxation, here are three rational compliance strategies:

Tip 1: Reevaluate Your Tax Residency

CARF information exchange is based on your tax residency. If you hold a passport from a small country (e.g., Saint Kitts, Vanuatu) but reside long-term in Shanghai or Beijing, with your primary life in the Mainland, you’re still a Mainland China tax resident. To truly mitigate risk, you need substantive identity planning—not just a passport, but actually relocating to a crypto tax-friendly jurisdiction (such as Dubai or Singapore) and severing tax ties with your previous residence.

Tip 2: Asset Inventory and Historical Segmentation

2027 is the start of data collection. Before then, conduct a thorough inventory of your assets, distinguishing between “existing assets” and “new assets.” For significant historical issues, consult a professional tax advisor to determine whether you should use the window period for compliant reporting or structural adjustments. Don’t wait until data sharing begins in 2028 to react passively.

Tip 3: Leave Unregulated Methods Behind and Embrace Compliance Structures

For Web3 founders and high-net-worth individuals: stop using personal accounts for large transactions. Consider holding assets through family trusts or offshore companies. While CARF will identify ultimate beneficial owners, legal structures can help isolate some legal risks and provide room for tax planning. Also, avoid underground banks. CARF works in tandem with anti-money laundering (AML) mechanisms; if underground banking channels are investigated, you’ll face not only back taxes but also criminal liability.

The “wild west” era of Web3 is ending. With CARF, crypto assets have officially entered the global regulatory landscape.

For Mainland users, “invisibility” is no longer possible. The future will reward compliance. Since you can’t avoid it, prepare early and protect your assets within the rules.

Disclaimer:

1. This article is republished from []; copyright belongs to the original author [Liu Honglin]. If you have objections to this republication, please contact the Gate Learn team, who will handle your request promptly according to relevant procedures.
2. Disclaimer: The views and opinions expressed in this article are those of the author and do not constitute investment advice.
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