Hong Kong Mulls Tax Incentives for Sophisticated Crypto Investors

Hong Kong is preparing to introduce policy by the end of the year seeking to extend tax incentives to family offices and private funds investing in crypto on behalf of wealthy clients.

Christopher Hui, Hong Kong’s Secretary for Financial Services and the Treasury, said the Special Administrative Region of China wants to ensure it has the “right conducive environment for blockchain, in particular their financial applications.”

“We are being asked all the time … what are the incentives … from the government in terms of growing this sector,” Hui said on Sunday during a keynote speech at Hong Kong’s FinTech Week.

Hong Kong already provides tax incentives for certain privately offered funds and family investment vehicles, granted they meet specific requirements and invest in designated areas.

That includes a profits tax exemption at a standard rate of 16.5%, while carried interest for private equity managers is taxed at 0%. Additionally, certain transactions may benefit from stamp duty relief.

The forthcoming policy aims to support the development and investment of crypto into regulated products as the region attempts to shape itself into a global digital assets hub.

It follows Hong Kong’s move to regulate virtual asset trading, which began two years ago with a pilot program under the Securities and Futures Commission, laying the groundwork for a formal licensing regime.

The Virtual Asset Trading Platform (VATP) regime, implemented in June 2023, aims to enhance investor protections and bolster compliance standards for digital asset platforms.

In furthering that specific policy, Hui said the government will introduce stablecoin policy on the “products front” by the end of the year.

Under the new framework, foreign fiat-referenced stablecoin issuers would need to establish a physical base in Hong Kong, hold reserves in local banks, and would be barred from offering interest payments to holders, Decrypt previously reported.

On the service front, Hong Kong will begin regulating custodians by “devising the right regime” sometime next year, while consulting market stakeholders on over-the-counter trading of crypto, Hui said.

Exactly how it intends to do that remains unclear. The SFC did not immediately respond to Decrypt’s request for comment.

“By embracing a broader scope of service regulation, we will be able to grow this market further,” he said.