Hong Kong Crypto Tax Guide 2024
Author: Stefano Passarello, CVO at Monx
Overview
There is no universal definition of digital asset, however according to Hong Kong Institute of Certified Public Accountants “Crypto-assets are digital assets that are stored on distributed ledgers that utilize cryptography for security, while the Inland Revenue Department of Hong Kong defines it as “digital representations of value that can be transferred, stored or traded electronically. They may be backed by physical assets or guaranteed by the government, and they may have no intrinsic value depending on the exact nature of the token”.
One of the most commonly known subsets of crypto-assets is cryptocurrencies. The market for crypto-assets is fast evolving. Over the past few years, Hong Kong has seen a growing amount of activity related to crypto-assets, including funds, initial coin offerings, exchanges and custodian services.
Content
- What is a digital payment token in Hong Kong?
- What is the regulatory framework in Hong Kong?
- What are the crypto tax rates in Hong Kong?
- How is crypto taxed in Hong Kong?
- When is the deadline for crypto taxes in Hong Kong?
- What are the tax incentives in Hong Kong?
- How about withholding tax and stamp duty?
What is a digital payment token in Hong Kong?
The Inland Revenue Department classify “Digital Assets” in three categories of tokens:
PAYMENT TOKENS:
They are means of payment for goods or services and encompass cryptocurrencies like Bitcoin. Such tokens are not legal tender in Hong Kong but are regarded as virtual commodities.
SECURITY TOKENS:
They are tokens that represent ownership interests, a debt or entitlement of share of profits in a business. They are regulated in Hong Kong by the Securities and Futures Ordinance (SFO).
UTILITY TOKENS:
They are tokens that provide the holder with access to goods or services.
What is the regulatory framework in Hong Kong?
Although Hong Kong does not have any targeted regulatory framework on Crypto Assets, the Securities and Futures Commission (SFC) starting from 2017 has been regulating the ecosystem around the “security” tokens and imposing licensing requiring for crypto players such as trading platforms and “virtual asset” portfolio managers and funds. Furthermore, existing laws provide sanctions against money laundering, terrorist financing, fraud and cyber-crimes, whether or not “virtual commodities” are involved. For more details, please refer to this link.
The tax treatment of “ Digital Assets” is regulated by a document called “Profit’s tax – Digital Economy, Electronic Commerce and Digital Assets” DIPN 39.
● The general principle is that the tax treatment of digital tokens would depend on their nature and use.
● The DIPN 39 provides a definition of Nature of Digital Assets as: digital representation of value, transferred, stored or traded electronically, may not be backed by physical assets or guaranteed by Government, may have no intrinsic value, short-term and volatile by nature.
Just like regular limited companies in Hong Kong, cryptocurrency businesses are required to keep proper business records in relation to their cryptocurrency transactions in accordance with section 51C.
What are the crypto tax rates in Hong Kong?
For businesses, profits from trading in cryptocurrencies are considered part of the normal business income and are subject to the standard corporate income tax rate of 16.5%. Income received in cryptocurrencies for goods and services are subject to the same standard corporate income tax or salary tax as traditional taxes.
There is no goods and services tax (GST) or value-added tax (VAT) applied to cryptocurrency transactions in Hong Kong.
For individuals, any profits from the sale of cryptocurrencies are generally considered capital gains and are not subject to income tax, since Hong Kong does not have a capital gains tax.
How is crypto taxed in Hong Kong?
Profits arising from the sale of capital assets are excluded from the charge of profits tax. If digital assets are bought for long-term investment purposes, any profits from disposal would not be chargeable to profits tax. Whether the digital assets are capital assets or trading stock has to be considered on the basis of the facts and circumstances. Well-established tax principles like the “badges of trade” would continue to be applicable and the intention at the time of acquisition of the digital assets is always relevant to decide whether they are capital assets or trading stock.
Common business activities involving cryptocurrency include:
- trading of cryptocurrency;
- exchange of cryptocurrency;
- and mining.
Hong Kong sourced profits from cryptocurrency business activities are chargeable to profits tax. In deciding the source of profits, it is necessary to ascertain the nature of the profits in question, the person’s relevant operations that produced the profits in question and the place where those profit-generating operations were carried out.
The question whether the buying and selling of cryptocurrency, exchange of cryptocurrency or mining of cryptocurrency amounts to the carrying on of a trade or business is a matter of fact and degree to be determined upon a consideration of all the circumstances. Factors such as the degree and frequency of the activity, the level of system or organisation (i.e. whether the activity is undertaken in a business-like manner) and whether the activity is done for the purpose of making a profit are relevant consideration.
When is the deadline for crypto tax in Hong Kong?
There are no separate deadlines specifically for crypto companies in Hong Kong, thus they are subject to the same timeline as all other limited companies. For companies closing their Financial year on 31st December, the deadline to submit the Profits Tax Return is 15th August; for companies closing their Financial year on 31st March, the deadline to submit the Profits Tax Return is 15th November.
| Financial Year End | Profit Tax Return Filing Deadline | Tax Payment Deadline |
| 31st December | 15th August (of the following year) | Deadline to pay taxes are stated on the Tax Assessment issued by the Inland Revenue Department folling the filing of the PTR. Exact is date is dependent on when the TaX Assessment is issued. |
| 31st March | 15th November (of the same year) | |
| 30th June | 30th April (of the following year) | |
| *The above deadlines are for companies that are not closing their first financial year. For companies closing their first ever financial year the first deadline is 21months after date of incorporation. | ||
What are the Tax Incentives in Hong Kong?
For the Financial Year 2023/2024 the Hong Kong government has introduced a 100% reduction on taxes capped at HKD 3,000, which means that the tax payable until this sum is waived.
There is also a package of tax incentives to high net worth private families to set up family offices in Hong Kong.
How about withholding tax and stamp duty?
No stamp duty is levied on the transfer of cryptocurrencies.
The tax treatment of crypto assets in Hong Kong continues to evolve as the market matures, reach out to Monx at [email protected] to find out more!
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Check out the full Global Crypto Tax Report 2024