Mr. Zhou from Hangzhou began accepting payments in USDT in 2021. After three years in the overseas e-commerce business, he has accumulated the equivalent of $600,000 in USDT in his account, most of which is held at a compliant, licensed exchange in Hong Kong.

He’s always had this misconception—”Cryptocurrencies aren’t on the CRS list, so the tax authorities can’t see them.”

On June 17, 2026, the Hong Kong Legislative Council passed the “Taxation (Amendment) (Automatic Exchange of Tax Account Information) Ordinance” on its third reading, formally incorporating the CARF (Crypto-Asset Reporting Framework) into the CRS system.

After passing the third reading, Hong Kong will, at the earliest,Effective January 2027; the first exchange will begin in 2028The

Mr. Zhou’s exchange account, Hong Kong bank account, and mainland identification information will be compiled into a single data package and automatically transmitted via an encrypted channel to the mainland tax authority on an ordinary workday in 2028.

He thought about it for three days and took two actions: First, he voluntarily reported his overseas income; second, he reassessed the structure of his cryptocurrency portfolio.

These are the trends that people in mainland China engaged in cross-border activities must be aware of in 2026—Cryptocurrencies are no longer a blind spot under the CRS; rather, they are among the first targets for exchange in 2028.The

01

What exactly is CARF, and how is it related to CRS?

CRS is an international framework for the automatic exchange of financial account information among countries. China joined in the second batch in 2018 and conducted its first exchange in 2019.

Over the past seven years, the CRS has covered ”traditional financial assets” such as bank accounts, securities accounts, the cash value of insurance policies, and trust beneficiary interests.

Cryptocurrencies fall just outside the scope of the CRS—they are not financial institutions, securities, or insurance products; they are highly decentralized, circulate globally, and lack transparency.

In 2023, the G20 commissioned the OECD to develop the CARF (Crypto-Asset Reporting Framework), with a clear objective: toLicensed Crypto Asset Service ProviderIncorporating the CRS system will require exchanges and wallet service providers to report user information just as banks do.

CARF does not operate independently; it functions asCRS Extension ModulesLayered on top of each other—that's why it's called ”CARF+CRS Dual Penetration.”

Since the beginning of 2024, more than 60 CRS participants worldwide have announced their intention to adopt CARF, with Hong Kong, Singapore, Japan, and South Korea leading the way.

The Hong Kong Legislative Council's passage of the bill on its third reading on June 17 means thatHong Kong was one of the first jurisdictions in Asia to implement the program.The

02

Which crypto assets are subject to look-through treatment?

Not all crypto assets are subject to look-through. CARF defines the specific scope of coverage:

Coverage Area:Tradable crypto assets such as BTC, ETH, USDT, and USDC held by licensed crypto asset service providers (CASP); on-chain NFTs (not held in self-custody wallets); and certain tokenized financial products.

Outside the coverage area:Self-custodial wallets (cold wallets, offline wallets), decentralized exchanges (DEXs, although on-chain activity is being indirectly tracked), and CBDCs (central bank digital currencies).

Exchanges are the key entry point. As long as your USDT is held on a licensed exchange (such as the VSMP virtual asset trading platform licensed by the Hong Kong Securities and Futures Commission or the DPT platform licensed by the Singapore Monetary Authority), it will be subject to穿透.

03

What happens after penetration?

Take Mr. Zhou as an example; the exchange packets he will receive in 2028 will contain the following information:

Name, mainland ID number, place of birth, and residential address—these are the ”identifying information” as defined by the CRS standards.

Name, address, and tax ID number of the crypto asset service provider—service provider identification.

Account number, year-end account balance (converted to U.S. dollars), and total amounts purchased, sold, and converted throughout the year—key data.

The entire exchange process is automatically carried out over an encrypted channel,No consent is required, and the service provider is not required to notify you.The

What Mr. Zhou received was not a ”tax bill,” but a ”reconciliation report.” The Mainland tax authorities will cross-check your personal income tax return data from the past few years against this CARF data.

If the discrepancy is ≥50,000 RMB and has not been reported, the case will automatically be referred to the ”Special Audit of Tax-Related Information for High-Net-Worth Individuals” process.

the reason whyOnce the tax audit is complete, the question you’ll face isn’t ”Should I pay back taxes?” but ”Does the tax authority already know whether I need to pay back taxes?”The

04

Two Typical Types of Risks Faced by Overseas Chinese

Category 1,“Receive USDT + Withdraw to a Hong Kong Bank Account”. For business owners in cross-border e-commerce, 90% is the path to follow.

Under the CARF+CRS framework, this structure would disclose three types of information: mainland identity, Hong Kong Stock Exchange account, and Hong Kong bank account.

In the past, you only had to file a ”differential dividend tax return” or a “tax-exempt return,” but starting in 2028, you will be required to provide a full explanation of the source of funds, the nature of the income, and any foreign exchange losses.

The second category,“Long-term holding of BTC + custody on overseas exchanges”. This group has been invisible in CRS exchanges over the past seven years because CRS does not report BTC balances.

After 2028, BTC holdings will be converted to U.S. dollars for reporting purposes. If unrealized gains from long-term holdings are not reported,Upon sale, you will be required to pay back taxes, late payment penalties, and fines, which can be up to 1–5 times the original amount.The

📌 If you are receiving payments in USDT or USDC, or holding BTC or ETH on an overseas exchange, filing a voluntary disclosure by September 2026 is currently the safest course of action to protect yourself.

05

A Three-Step Approach to Compliance Self-Assessment in 2026

Step 1,Compile a list of all overseas cryptocurrency service providers. This includes licensed exchanges in Hong Kong, Singapore, Japan, the United States, and the European Union. Log in to each one and download your complete account history.

Step 2,Comparison with Mainland China Individual Income Tax Filing Records. Organize the buy, sell, conversion, and withdrawal transactions in your account history into a table to see which transactions correspond to your reported income.

Step 3,Proactively Report Any Discrepancies. Proactively report the difference under the ”Other Income” or ”Business Income” categories during the annual tax settlement.

Following the vote by the Hong Kong Legislative Council,2027 is the transition year, 2028 is the first exchange year, and large-scale audits will begin in 2029.The

2026 marks a milestone year for the regulation of cross-border crypto assets held by Chinese nationals in mainland China.“Golden Window Period for Self-Inspection”. If you voluntarily file an amended return now, you will generally not be subject to penalties; however, if you file an amended return after 2028 following a "piercing the corporate veil" determination, you may be subject to a fine of 50%-5 times the amount of unpaid taxes, in accordance with Article 63 of the Tax Collection and Administration Law.

📌 The CARF+CRS dual-penetration approach is not intended to ”crush” overseas Chinese, but rather to ”gain a clear understanding” of them. The purpose of this understanding is not to punish, but to establish a globally unified system of asset transparency.

It’s better to do this thing this morning than today, and better to do it today than tomorrow.

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