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What do you need to do?Consider how the new regulations will impact any virtual currency transactions that affect you and be prepared to comply.
Erik Leyssens (雷耀明)
Registered Foreign Lawyer
Stefania Lucchetti
Senior Associate
Sherman Lo (羅孝祖)
Registered Foreign Lawyer
Simon Milne
Partner
T +852 3443 1023
Hayden Flinn (范凱敦)
Partner
T +852 3443 1113
Beijing
John Shi
(史衛)
Shanghai
Martyn Huckerby
(贺墨亭)
China’s Ministry of Culture and Ministry of Commerce jointly issued new regulations prohibiting the use of virtual currency to purchase real goods and services. The Notice on Strengthening the Administration of Virtual Currency in Online Games is particularly relevant to online game providers and aims to prevent virtual currency transactions from affecting real-world financial systems.
New regulations at a glance
Virtual currency is defined in the new regulations as “a virtual exchange tool purchased with legal tender by an online gamer which can be exchanged for online game services”. Virtual currency can be expressed as a pre-paid charge card, prepaid amount or points but does not include virtual items acquired during online gaming. The regulations provide, amongst other things, that:
- enterprises issuing virtual currency or providing virtual currency exchange services must register with provincial cultural authorities within three months of promulgation of the regulations and comply with certain reporting and record-keeping requirements in respect of their virtual currency activities,
- an enterprise that issues virtual currency may not at the same time operate a platform to facilitate virtual currency trades between users,
- virtual currency may only be used to purchase the virtual services of the issuer of the currency and not to purchase real goods or to pay for products or services provided by another enterprise, and
- underage gamers are permitted to purchase virtual currency from issuers but they are not allowed to exchange it through a virtual currency exchange platform.
The broader issue of virtual world regulation
The rapid growth of virtual currency transactions, and virtual worlds in general, has raised a number of concerns for Chinese authorities over recent years. One concern is that virtual currency transactions could be used for money laundering purposes or otherwise have adverse effects on real financial systems.
The new regulations mark the latest attempt by Chinese authorities to ‘de-blur’ the line between virtual and real-world transactions and to make virtual currency businesses more transparent and accountable. In February 2007, 14 government agencies issued a joint Notice banning the use of virtual currency to purchase real world products and the trading of virtual currency, but the ban has been largely ineffective. In September 2008, the State Administration of Taxation issued a statement to the effect that any real world profits realised from the purchase or sale of virtual currency falls within the scope of individual taxable income.
Disclaimer
The views set out in this publication are based on our experience as international counsel representing clients in their business activities in China. As is the case for all international law firms licensed in China, we are authorised to provide information concerning the effect of the Chinese legal environment. However we are not admitted to practice Chinese law and so are unable to issue opinions on matters of Chinese law.
This publication is only a general outline. It is not legal advice. You should seek professional advice before taking any action based on its contents.