Circumvent China Currency Restrictions with Crypto?
Contents
Circumvent China Currency Restrictions with Crypto
Several Asian countries, such as China have implemented country-wide currency restrictions for RMB (Renminbi) leaving China — and those restrictions have been tightening even further over the past few years. A currency restriction limits the amount of currency a person in that foreign country can transfer outside of its borders to the US for example. For the past few years, the restriction has been set at $50,000. This makes it hard for US Persons to receive gifts from Persons in China without an effective workaround. A key issue becomes that $50,000 is not sufficient for various types of intended US transactions, such as making a transfer for a large acquisition or purchase in the United States. A recent question we were presented with was whether or not a foreigner in China could simply acquire cryptocurrency from overseas and then use the virtual currency to make a transfer to the US. The problem with pursuing this type of action is that in China cryptocurrency is strictly prohibited. Therefore, foreign nationals may be taking too great a risk by seeking to transfer money out of China and into the United States by first converting it into virtual currency, when they are still residing in China or considered a resident of China.
What are Currency Exchange Controls and Currency Restrictions in China
The currency restrictions in China are designed to avoid too much currency from moving outside of the country — due to tight banking controls in China. The banking restrictions in China limit the amount of money that can leave China and move to the United States. This is capped at $50,000. Therefore, if a foreign person wants to move money from China to the United States, it can be an unnecessarily complicated issue that we handle all the time on the receiving end — since these types of transfers generally require the US person recipient to submit a Form 3520. Recently a Taxpayer approached us wondering if they could move the money from RMB and into Crypto — and then to the US?
The problem is that it is a very risky proposition on account of how China has banned crypto.
China Law on Cryptocurrency Summarized
China frowns heavily on cryptocurrency, so residents of China seeking to circumvent Chinese transfer laws with crypto are taking a big risk:
As provided by Reuters:
-
-
-
“China’s most powerful regulators on Friday intensified a crackdown on cryptocurrencies with a blanket ban on all crypto transactions and mining, hitting bitcoin and other major coins and pressuring crypto and blockchain-related stocks.
-
Ten agencies, including the central bank, financial, securities and foreign exchange regulators, vowed to work together to root out “illegal” cryptocurrency activity, the first time the Beijing-based regulators have joined forces to explicitly ban all cryptocurrency-related activity.”
-
-
Beware of China Currency Restriction Planning Workarounds
Clearly, the country China has every intent to enforce cryptocurrency restrictions. Sure, some foreign nationals may be able to find ways to try and technically circumvent the rules, but it is clear that China will pounce on anybody caught violating cryptocurrency — especially now that it is considered illegal in China — unless the rules change in the future. Most individuals opt instead to try to navigate the transfer from a Chinese Corporation instead of an individual — although there are limitations and it can be a lengthy process.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm today for assistance.