Country overview

Hong Kong is traditionally considered an offshore between mainland China and the other world. However, after the crypto ban in China, it became a legal window to crypto for millions of Chinese people.

Hong Kong is a safe place with low crime and violence levels. The jurisdiction has 78.3 points (from 100) for safety level in Numbeo crime rating(1). Homicide level(2) is 0,3 per 100,000 inhabitants a year. Story of firearm-related death(3) 0.03 per 100,000 inhabitants a year - the lowest in the world.

Crypto payments in Hong Kong are legal according to the local tax authority guide (4).

“A person engaging in a business may conduct transactions using cryptocurrency for various purposes. For example, the person may accept cryptocurrency as payment from customers or use it for purchasing goods. The market value of the cryptocurrency accrued at the date of transaction should reflect the amount of sales and purchases”

In March 2022, the mobile arm of Hutchison Telecommunications announced (5) “an industry-first collaboration that will enable Hong Kong customers to pay for phone bills, products, and services online with selected cryptocurrencies.”

According to the Standard survey (6), 18% of HK citizens use crypto for transfers/payments. 88% of local crypto users are interested in crypto cards.

According to the local tax authority guide (7), paying a salary in crypto is legal in Hong Kong.

“Employees, particularly those working in digital asset related sector, may receive remuneration (e.g. salary) in cryptocurrency. The same salaries tax treatment would apply to such income from employment even though it is paid in cryptocurrency. The amount to be reported as the employee’s employment income should be the market value of the cryptocurrency at the time of accrual.

Cryptocurrencies are legal (as Virtual Assets or VA) and have been regulated in HK since 2018. Some assumptions about regulation in 2022 may be found in the joint ordinance (8) of the Hong Kong Monetary Authority (HKMA) and Securities and Futures Commission (SFC). The main priority for regulators is investors’ protection. According to the ordinance, “most VA trading platforms in Hong Kong and overseas are unregulated or regulated only for AML/CFT purposes.”

DifiGroup’s interpretation (9) of the ordinance is that “any institutions doing VA business must engage a partner based in Hong Kong.”

In October 2022, the SFC authorized a regulatory regime (10) for digital asset futures ETFs. This factor has sped up the local crypto market, and SFC-licensed brokers (11) have started to provide crypto-related services.

Also, in December 2022, the legislative assembly published the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLCTFO). According to Lexology, this bill made the SFC the primary crypto regulator in the country (12).

This review (11) and this article (13) provide more details about AMLCTFO and SFC regulation functions.

From 1 June 2023, new crypto regulation rules will be implemented in Hong Kong. According to it, crypto entities must get an SFC license or stop operations. The SFC already provided a warning (14) for local companies in August. Some information about new regulations may be found in the New Regulations Consultation Paper (February 2023)(15).

New regulations defend investors’ interests and require licensed companies to have a significant capital and strict accounting/AML policy. According to insiders (16), HK’s license costs between $12,000,000 and $20,000,000.

So, currently, in August 2023, only the same two companies got the license (17), which had it before in the SFC sandbox regime - Hash Key and OSL. Although the price of the license is high, we should remember that it indirectly gives access to the largest crypto market in the world. And HK already has a great case of new projects after new regulations. For example, the new stablecoin FDUSD was listed on Binance last week.

According to HSBC's business assumption (18), Hong Kong ” has no specific legislation regulating the taxation of cryptocurrencies.” The Hong Kong Inland Revenue Department (IRD) provided its interpretation of cryptocurrency taxation in March 2020 in Departmental Interpretation and Practice Notes No. 39 (“DIPN 39”) (19). You may see standard tax rates applied for VA below.

1)Numbeo crime rating. Statistics

2)Homicide level. The list of countries by UNODC homicide rate.

3) Firearm-related death. Historical list of countries by firearm-related death rate.

4)“3” becomes Hong Kong’s first telecoms operator to accept cryptocurrency payments. Providing customers with a new spending platform in the Metaverse. PDF-file

5)Crypto is gaining ground as a mode of payment in Hong Kong. Article

6)PROFITS TAX DIGITAL ECONOMY, ELECTRONIC COMMERCE AND DIGITAL ASSETS.

7)Joint circular on intermediaries’ virtual asset-related activities. PDF-file

8)Hong Kong gives bank brokers the crypto go-ahead. Article

9)Hong Kong brokers await SFC approval before new virtual asset trading legislation. Article

9¹)Hong Kong financial regulator issues guidelines for crypto futures ETFs. Article

10)Passage of Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022

11 and 12)What are virtual assets in Hong Kong, and what do the city’s new rules mean for crypto trading? Article

13)Warning: Virtual asset trading platforms engaging in improper practices. Article

15)Consultation Paper on the Proposed Regulatory Requirements for Virtual Asset Trading Platform Operators Licensed by the Securities and Futures Commission

16)Hong Kong's New Crypto License Could Cost Exchanges a Pretty Penny.

17)Lists of virtual asset trading platforms

19 and 20)HK Taxation of E-Commerce and Digital Assets (DIPN 39)

21)Crypto Tax-Free Countries for 2023

22)Corporate - Taxes on corporate income