Virtual assets, including cryptocurrencies, have gained significant attention in recent years. While individuals are permitted to hold virtual property under Chinese law, many wonder whether businesses can legally engage in buying, selling, and holding virtual currencies like Bitcoin. This article explores the legal framework, compliance risks, and practical considerations for businesses dealing with virtual currencies.
Understanding Key Legal Concepts
Business vs. Company
The term "enterprise" (企业) is used intentionally here, as it encompasses a broader legal scope than "company" (公司). A company refers to a profit-oriented legal entity established under the Company Law of China, including limited liability companies and joint-stock limited companies. Enterprises, however, include not only legal entities like companies but also unincorporated organizations such as partnerships.
Key Point: Both legal entities and unincorporated organizations are considered civil subjects under Chinese law, granting them the right to participate in civil activities. This makes "enterprise" the more inclusive and appropriate term for this discussion.
Legal Framework for Virtual Currency Transactions
Virtual Currency as Virtual Property
Chinese law currently recognizes virtual currencies like Bitcoin as virtual commodities rather than legal tender. Several regulatory notices, including:
- The 2013 Notice on Preventing Bitcoin Risks
- The 2017 Announcement on Preventing Token Issuance and Financing Risks
- The 2021 Joint Announcement on Preventing Virtual Currency Trading Speculation Risks
These documents clarify that while virtual currencies lack legal tender status, they possess property attributes as virtual commodities.
Rights of Businesses
- Acquisition Rights: Businesses can legally acquire virtual currencies, with Bitcoin and other mainstream cryptocurrencies posing manageable compliance risks.
- Contract Validity: Transactions between private entities are governed by the Civil Code, which protects virtual property. Absent explicit prohibitions in laws or administrative regulations, such contracts remain valid if parties demonstrate legal capacity and genuine intent.
Risks and Compliance Considerations
Speculative Trading Risks
While businesses can hold virtual currencies, engaging in speculative trading or market manipulation carries significant legal risks:
- Regulatory warnings against virtual currency speculation are stringent.
- Operating platforms dedicated to speculation may constitute illegal business operations under Price Law and even trigger criminal investigations for suspected illegal business activities (though convictions under Criminal Law Article 225 remain rare).
NFT Transactions
- Ownership: Businesses can legally purchase and hold NFTs, recognized as virtual property.
Transfer Limitations: NFT transactions face constraints due to:
- Intellectual property concerns (unauthorized transfers may infringe copyrights).
- Lack of approved secondary trading platforms in China.
NFT Speculation Risks
While NFT prices generally follow market mechanisms (not government-set), price manipulation (e.g., fake auctions) violates:
- Price Law Article 14 (prohibiting collusion and price distortion).
- Auction Law Article 15 (banning fraudulent bidding practices).
Practical Guidelines for Businesses
Custody Agreements
When employees or controlling individuals hold virtual currencies on behalf of a business, a custody agreement should include:
- Legal Compliance: Ensure the currency is not a prohibited ICO token.
- Rights Allocation: Clarify profit entitlements from price fluctuations.
- Compensation: Specify fees for custodians.
- Transfer Clauses: Mandate asset transfers upon custodian departure.
- Penalties: Outline breach consequences.
- Force Majeure: Address policy change impacts.
- Jurisdiction: Prefer courts in Beijing or arbitration with flexible legal applicability.
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FAQs
1. Can businesses legally mine Bitcoin in China?
No. China banned cryptocurrency mining in 2021 due to energy consumption concerns. Businesses engaging in mining risk penalties.
2. Are businesses allowed to pay salaries in virtual currencies?
No. Salaries must be paid in legal tender (RMB). Using virtual currencies violates labor and tax regulations.
3. How should businesses report virtual currency holdings for taxation?
Virtual currency transactions may trigger capital gains taxes. Businesses must maintain detailed records and consult tax professionals for compliance.
4. Can businesses use virtual currencies for cross-border payments?
No. China restricts capital account transactions. Using cryptocurrencies for cross-border payments bypasses foreign exchange controls and is illegal.
5. What happens if an employee misuses company-held virtual currencies?
The custody agreement should specify penalties and recovery mechanisms. Legal action may be necessary for theft or fraud.
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Conclusion
While businesses face fewer restrictions on holding virtual currencies than individuals, active trading—especially speculation—carries substantial legal risks. A prudent approach involves:
- Strict adherence to custody protocols.
- Avoiding market manipulation.
- Staying updated on evolving regulations.
By navigating these complexities carefully, businesses can mitigate risks while engaging with virtual assets responsibly.