As cryptocurrency trading becomes increasingly mainstream, tax compliance has emerged as a top concern for investors. When do you need to report gains? How are different types of transactions classified for tax purposes? To address the most common questions circulating in the crypto community, we’ve consulted the legal and compliance team from a regulated Taiwanese cryptocurrency exchange — insights that apply broadly to individuals navigating crypto taxation in a compliant manner.
The following guide breaks down critical aspects of cryptocurrency taxation based on current regulatory interpretations, practical examples, and expert recommendations — all while focusing on transparency, accuracy, and legal compliance.
Understanding the Legal Status of Cryptocurrency
One of the foundational questions in crypto taxation is: What is the legal classification of digital assets?
In Taiwan, financial regulators classify cryptocurrencies as “virtual commodities” rather than legal tender or payment instruments. This distinction plays a crucial role in how taxes are applied.
According to a January 2025 directive from the Ministry of Finance, individual gains from buying and selling cryptocurrencies are treated as capital gains under Article 14, Paragraph 1, Category 7 of the Income Tax Act. This means taxable income is calculated as:
Taxable Gain = Sale Proceeds – Acquisition Cost – Related Fees
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For example, if you buy Bitcoin and later sell it at a profit — even if the proceeds remain in digital form — that gain must be reported as property transaction income. It's essential to maintain detailed transaction histories, including purchase prices, sale values, and associated fees like bank transfer costs.
Should future regulations reclassify crypto as financial instruments or securities, retroactive application remains uncertain. However, under the Tax Collection Act, tax authorities can audit returns up to seven years back. Therefore, maintaining long-term records is not just prudent — it’s essential for risk mitigation.
When Is Crypto Income Considered Realized?
A frequent point of confusion: Does tax liability arise only when crypto is converted into fiat and withdrawn to a bank account?
The answer is no.
Taxable events occur at the moment of disposal — when you sell, trade, or use cryptocurrency to purchase goods or services. Whether funds leave the exchange or stay on-chain does not delay or eliminate your reporting obligation.
If you sell Bitcoin on a domestic platform and receive TWD (New Taiwan Dollar), this constitutes a realized gain in that fiscal year — regardless of whether you withdraw the funds. The key factor is the transaction event, not the movement of money into a traditional bank.
Even if profits are held overseas or transferred to foreign exchanges before being repatriated, they may still fall under Taiwan’s tax jurisdiction. While current rules do not clearly define how such cross-border flows should be treated under the Basic Income Tax Act, regulatory clarity is expected in the coming years.
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Until then, investors should assume all profitable transactions are subject to reporting — especially those originating from境内 (domestic) activity.
Distinguishing Between Domestic and Foreign-Sourced Income
Determining whether gains are classified as domestic or foreign income affects both reporting requirements and potential penalties.
Domestic Income
Gains from selling crypto on licensed local exchanges — such as those compliant with KYC/AML standards — are clearly treated as domestic-sourced income. These platforms generate auditable records, issue invoices, and report business taxes, making it easier for tax authorities to verify transactions.
Because these systems are integrated with domestic banking infrastructure, any sale denominated in TWD triggers an immediate tax obligation.
Foreign Income
Transactions conducted via offshore exchanges introduce complexity. If you transfer crypto abroad, sell it for USD, and later wire funds back to Taiwan, questions arise about whether this qualifies as foreign-sourced income under the Basic Income Tax Act.
Currently, there is no definitive guidance from the Ministry of Finance on how such cases will be assessed. However, attempting to exploit jurisdictional gaps carries significant risk.
Transferring taxable domestic gains offshore without proper disclosure could be viewed as tax evasion — a criminal offense punishable by fines up to NT$100 million and imprisonment of up to seven years under Article 41 of the Tax Collection Act.
Moreover, foreign exchange inflows may trigger scrutiny. Without verifiable transaction trails from international platforms, taxpayers may struggle to prove cost bases — leading tax authorities to assess taxes on gross proceeds, not net gains.
How Different Crypto Activities Are Taxed
With the rise of decentralized finance (DeFi), NFTs, staking, and GameFi, new forms of income have emerged. Here's how each is currently treated:
1. Crypto-to-Crypto Trades
Every trade (e.g., swapping ETH for SOL) is a taxable event. Report gains using Form 76: Non-Real Estate Property Transaction Income, subtracting acquisition cost and fees.
2. Airdrops
No specific guidance exists yet. Until formal rules are issued, treat airdropped tokens as ordinary income at fair market value upon receipt. Keep records of wallet addresses and blockchain timestamps.
3. NFT Transactions
Minting, buying, selling, or gifting NFTs may generate taxable gains. Similar to crypto trades, calculate profit as sale price minus cost basis and minting/gas fees.
4. DeFi & Staking Rewards
Yields from liquidity pools or staking are generally considered income at receipt. While exact classification remains unclear, treating them as property transaction income aligns with current best practices.
5. GameFi Earnings
Tokens earned through play-to-earn games should be valued at the time of receipt. Subsequent sales trigger capital gains reporting.
6. Crypto Salaries & Payments
Receiving wages or freelance payments in crypto counts as ordinary income. Report based on TWD value at the time of receipt.
For all non-traditional income types, use detailed self-reporting under “76 Non-Housing Property Transaction Income” and retain comprehensive documentation.
Consequences of Underreporting or Non-Compliance
Failing to report crypto gains — intentionally or negligently — exposes individuals to serious consequences:
- Back taxes plus interest
- Penalties up to several times the unpaid amount
- Criminal prosecution for tax evasion
A common misconception is that "if they don’t know, I don’t have to report." But tax authorities are enhancing their capabilities through data-sharing agreements with licensed exchanges and blockchain analytics tools.
Domestic exchanges file business tax returns and maintain user records — enabling cross-verification with personal filings. Even without full real-time blockchain monitoring, inconsistencies in reported data can trigger audits.
Using unregulated or offshore platforms increases risk: if you cannot provide credible proof of cost basis, the tax office may assume zero cost — taxing your entire sale amount.
Proving Costs and Claiming Losses
To legally reduce your tax burden, you must document everything:
- Trade confirmations
- Wallet addresses
- Timestamps
- Bank transfers
- Fee receipts
On regulated platforms, users can download complete transaction histories that include:
- Exact trade times
- Prices in TWD
- Fees incurred
- Deposit/withdrawal logs
These records carry strong evidentiary weight because exchanges operate under government oversight and issue official invoices.
While screenshots of blockchain transactions or wallet histories can support claims, they are often insufficient on their own. Tax officials prioritize third-party verified data over self-generated logs.
Handling Annual Losses for Tax Relief
Good news: crypto losses can offset gains.
Under current rules, you can claim capital loss deductions to reduce your taxable property income. Key points:
- Losses can fully offset gains in the same year.
- Unused losses can be carried forward for up to three years.
- You cannot deduct losses against other income types (e.g., salary).
Example:
You earn NT$500,000 from Bitcoin trades but lose NT$300,000 on Ethereum. Only NT$200,000 is taxable this year. If next year brings another NT$400,000 in gains, you could apply remaining losses to lower that bill — saving thousands in taxes.
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Again, documentation is critical. Without verifiable records, deductions may be disallowed.
Legitimate Tax Planning vs. Illegal Evasion
True tax optimization happens within the law — not outside it.
Legitimate strategies include:
- Harvesting losses to offset gains
- Holding assets longer (though no preferential rate currently exists)
- Using compliant platforms with full audit trails
What’s not allowed:
- Moving funds offshore to avoid reporting
- Using anonymous exchanges without KYC
- Failing to declare income just because it stays in crypto form
Attempts to disguise domestic gains as foreign income or hide profits abroad constitute tax evasion — not planning.
Best Practices for Reducing Tax Risk
Experts recommend a proactive approach:
- Use regulated domestic exchanges that provide auditable records.
- Download transaction history regularly — don’t wait until tax season.
- Classify all income types accurately, even those without explicit guidance.
- Claim allowable deductions for losses and fees.
- Consult a licensed accountant familiar with digital assets.
Platforms that integrate compliance into their design offer peace of mind: clear records, verifiable cost bases, and alignment with local laws make filing easier and safer.
Frequently Asked Questions (FAQ)
Q: Do I need to report crypto gains if I didn’t cash out?
A: Yes. Selling or trading crypto creates a taxable event regardless of withdrawal status.
Q: Are NFTs taxed differently than cryptocurrencies?
A: Not necessarily. Both are treated as property; gains come from differences between sale price and cost basis.
Q: Can I deduct gas fees from my taxes?
A: Yes. Transaction fees related to buying or selling are considered deductible costs.
Q: What happens if I lose my transaction records?
A: You risk being taxed on full sale amounts with no cost deductions. Always back up your data.
Q: Can I carry forward crypto losses indefinitely?
A: No. Unused losses can only be carried forward for three years.
Q: Is staking income taxable when earned or when sold?
A: Generally taxable upon receipt at fair market value.
Disclaimer: This article does not constitute tax, legal, or investment advice. Regulations vary by jurisdiction and change over time. Please consult a qualified professional for personalized guidance.