Hong Kong has proposed exempting cryptocurrency gains from taxes for hedge funds, private equity and family investment vehicles in a bid to strengthen its position as a leading crypto financial hub.
The proposal, currently open for a six-week consultation, also includes exemptions for investments in private credit, overseas property and carbon credits, according to a report by the Financial Times.
The initiative aims to help Hong Kong compete with regional rivals like Singapore, which provides similar tax incentives, and Switzerland, known for its wealth management expertise.
If implemented, the tax exemption could have significant implications for Hong Kong’s digital economy as the city seeks to attract more global liquidity.
Competing with regional finance hubs
Hong Kong’s proposal to scrap the crypto tax comes as competition rises among rivals Singapore and Switzerland, which have made strides in attracting global liquidity.
Singapore introduced its Variable Capital Company (VCC) framework in 2020, which now houses more than 1,000 funds.
Hong Kong has promoted its Open-Ended Fund Company (OFC) structure since October 2023, launching over 450 funds under the scheme.
Tax implications
The tax break proposal could make Hong Kong a viable offshore financial center in its strategic attempt to ease taxation burdens on digital and alternative assets.
According to the Financial Times, Hong Kong aims to establish itself as a peer among leading financial centers in the Asia-Pacific region and beyond. Analysts suggest the move could bolster the Asian crypto market by encouraging more inflows into the city if the proposal is approved.
On Nov. 18, crypto analyst Justin d’Anethan said Hong Kong is “offering tax breaks and speeding up crypto licenses,” seeing it “as a growth engine.”
Largest Hong Kong digital bank goes crypto
The tax proposal follows the recent announcement by ZA Bank, Hong Kong’s largest virtual bank, launching a new crypto service for retail users, allowing them to buy and sell Bitcoin (BTC) and Ether (ETH) directly using fiat.
According to an official Nov. 25 press release, Hong Kong residents with a ZA Bank account can undergo a risk assessment to use the new crypto service linked with the bank’s app.
Calvin Ng, alternate chief executive at ZA Bank, said the service was launched in partnership with crypto exchange HashKey to meet regulatory requirements and push toward merging crypto with traditional banking.
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