Hong Kong Crypto: SFC Licensing & Tax #8

Country facts

Hong Kong crypto score

Trade and store crypto

SFC licensing, retail trading rules, and Hong Kong’s pro-crypto pivo

Hong Kong has shot up the ranks in Q1 2022, due mostly to reclaiming ground that it lost in Q4 2021 when so much uncertainty was hindering its economy overall. Things may or may not have settled with regard to its association with China, but there’s no doubt that Hong Kong’s population has a highly enthusiastic outlook for crypto services and products. Despite many years of unclear guidance and non-regulation over cryptocurrency, Hong Kong’s rise in Q1 reflects high overall figures, particularly the number of leading institutions providing crypto courses. The most influential factor is the latest comprehensive regulatory guidance to banks, intermediaries, and insurers on virtual asset-related activities. Virtual Asset Service Providers (VASPs) now have a clear, actionable basis to attract customers looking to increase their exposure to crypto. Furthermore, banks and insurers looking to manage virtual assets on a proprietary basis or as part of their banking or insurance products now have firm guidance on how virtual assets should be treated from a prudential and risk perspective. Nevertheless, banks and intermediaries may only partner with Hong Kong-licensed virtual asset trading platforms. Hong Kong is currently in the ‘wait and see’ file.

Wide institutional acceptance of cryptocurrencies and low tax on gains is undermined by uncertainty over future legislation and underdeveloped retail opportunities for spending crypto. However, the government of Hong Kong has recently proposed allowing retail investors to trade in cryptocurrencies – something which it has been opposed to previously – to try and lure back those crypto investors who jumped ship to other more open crypto environments such as the UAE, per Reuters. Such proposals could open the way for retail investors to trade crypto and advertise their services.  Whether the mainland will approve of such loosening of restrictions probably doesn’t take someone with a crystal ball to predict. Watch this increasingly tense space.

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Bitcoin trading & crypto law in Hong Kong

Legal – existing crypto legislation

Hong Kong officially recognizes bitcoin and other cryptocurrencies, describing them as ‘virtual commodities’ or ‘virtual currencies’. However, Hong Kong is currently undergoing regulatory changes relating to the buying and selling of cryptocurrencies by retail investors, so watch out for updates on the latest position. Hong Kong-based exchanges are regulated and need to comply with the Securities and Futures Commission (SFC) regulations. Buying bitcoin with Hong Kong dollars is straightforward and Hong Kong-based exchanges support local payment methods.

Legal – forthcoming crypto legislation

Be aware that the SFC (Securities and Futures Commission) is bringing in a new regulatory regime around crypto exchanges and their offerings to retail traders. If the proposed changes are made law, retail investors will no longer be allowed to buy bitcoin in Hong Kong from cryptocurrency exchanges and other points of sale such as Bitcoin ATMs.

Bitcoin tax in Hong Kong

Tax relief

Crypto trading is both recognized and tax allowable, so your expenses as a professional incurred in buying or mining crypto – and your losses – can be offset. There is also no capital gains tax on buying and selling crypto – only income tax. Your crypto purchases and sales will make up the revenue figure in a given year from which you will deduct the costs of cryptocurrency purchases. Also, investment costs from previous consecutive years can be added to the following returns until they are fully deducted.

Tax when moving residency

If you are a long-term resident of Hong Kong you have probably been deemed a permanent resident for tax purposes. Should you move and become a resident, your tax affairs will come under the jurisdiction of your country of residence.

Tax on mining

Mining is beyond the scope of most individuals and calls for significant investment in time, money, and equipment. However, if you are declaring yourself as a miner you are required to pay income tax on your profits, but you may also deduct your expenses, such as electricity, maintenance fees, and the cost of your hardware.

Crypto financial services in Hong Kong

Fin services – retirement planning

Most retirement and pension funds worldwide deem cryptocurrencies too volatile to become part of long-term retirement schemes. There is little certainty on this at present.

Fin services – banking

Global banking giant Standard Chartered Bank has announced that its innovation arm, SC Ventures, will operate a cryptocurrency brokerage and exchange platform in a joint venture between SC Ventures and BC Technology Group (0863.HK), a Hong Kong-based investment company specializing in digital assets. BC Technology operates OSL, the first cryptocurrency exchange to be licensed by Hong Kong’s Securities and Futures Commission.

Fin Services – Defi

Hong Kong has highly regulated banks and financial services, but there is no real movement in this area.

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Bitcoin in Hong Kong

Spend

Hong Kong doesn’t officially recognize cryptocurrency as a payment method. Despite the efforts of a few individual retailers, the city is not the best place to spend your crypto wealth.

Gifting crypto

You won’t be able to reduce your tax by gifting your cryptocurrency. Whatever gain you have made on it will be taxable up to the point at which you gift it.

Crypto Exchanges

Best exchanges in Hong Kong

NAME			RATING	FOUNDED DATE	DEPOSIT METHOD	BASED IN	REVIEW	SIGN UP
#1		Crypto.com	4.6	2016	Credit Card Bank Transfer	Singapore	Coincub Review	Register Now
#2		OKX	4.25	2017	Bank card P2P third-parties crypto	Seychelles	Coincub Review	Register Now
#3		Bybit	3.6	2018	Card Crypto Sepa Wise Alipay Wechat Apple Pay Google Pay	UAE	Coincub Review	Register Now
#4		Gate	3.4	2013	Bank Transfer Credit Card Debit Card SEPA Apple Pay Google Pay		Coincub Review	Register Now

#1 Crypto.com 4.6

Register Now

FOUNDED DATE2016

DEPOSIT METHOD Credit Card Bank Transfer

BASED INSingapore

Review

#2 OKX 4.25

Register Now

FOUNDED DATE2017

DEPOSIT METHOD Bank card P2P third-parties crypto

BASED INSeychelles

Review

#3 Bybit 3.6

Register Now

FOUNDED DATE2018

DEPOSIT METHOD Card Crypto Sepa Wise Alipay Wechat Apple Pay Google Pay

BASED INUAE

Review

#4 Gate 3.4

Register Now

FOUNDED DATE2013

DEPOSIT METHOD Bank Transfer Credit Card Debit Card SEPA Apple Pay Google Pay

BASED IN

Review

Crypto regulation in Hong Kong

Security

Using a Hong-Kong based exchange offers a more consistent level of protection in the case of loss, fraud, or hacking, as the Securities and Futures Commission (SFC) regulates them. But, as with any crypto dealings you are considering, it’s always a good idea to check the levels of security, protection, and insurance any exchange can offer you.

Transparency

As with many government bodies, the Hong Kong tax authorities can request information from crypto exchanges and expect compliance with their laws. You’ll need to provide your personal details and proof of ID – so you can forget about the myth of anonymity that surrounds cryptocurrency.