Hong Kong has no single crypto law, but it's regulated. Here's the gist:
- Owning Crypto: It is legal! You can hold all the Bitcoin you want.
- Trading Crypto: Only on licensed platforms. Look for the VASP license!
- Running Crypto Business: Need a VASP license. Don't risk it!
- Taxes: No capital gains tax, but profits might be taxed as income.
You can buy cryptocurrency through licensed exchanges, peer-to-peer marketplaces, or brokers using HKD.
There is no capital gains tax on crypto, but frequent trading profits are taxed as income up to 17%.
Virtual asset trading platforms must be licensed by the SFC, with a transitional period until May 31, 2024.
Retail investors are currently limited to platforms where they must have a portfolio exceeding HKD 8 million.
Hong Kong's evolving regulatory landscape aims to foster a secure crypto ecosystem, but restrictions on retail investors may affect broader adoption.
Currently, retail investors are allowed to purchase and trade cryptocurrency in Hong Kong.
Cryptocurrencies are not considered legal tender but are treated as virtual commodities and digital currency.
Because of this label, there is still a lot of grey area when it comes to the crypto market in Hong Kong.
Despite this, the comprehensive rules that have governed cryptocurrency in the area are beginning to change.
Currently, these are the rules and regulations regarding the use of cryptocurrency in Hong Kong.
- No Capital Gains Tax on cryptocurrency
- Mining regulations will revolve around the data centers they're mined in
- Any centralized Hong Kong crypto exchange that operates within the territory or offers crypto to local investors must be licensed by the Hong Kong Securities and Futures Commission (SFC).
- Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) laws apply to every person and financial institution in Hong Kong, regardless of the activity.
How to Buy Crypto in Hong Kong
The general process of buying crypto can be similar across different countries. It's important to take note that crypto is usually priced and purchased using the local fiat currency. So, in Hong Kong, it would be HKD.
Cryptocurrency exchanges are online platforms that allow you to buy and sell cryptocurrencies with other users or directly from the exchange. Hong Kong has several licensed exchanges, such as Tidebit and iBTC, catering to the HKD market. Other international exchanges like Binance and Crypto.com are also popular options.
Another way to purchase crypto is through Peer-to-Peer (P2P) marketplaces. These platforms connect buyers and sellers directly, allowing them to negotiate prices and payment methods. Bisq is an example of a P2P marketplace that operates in Hong Kong.
Cryptocurrency brokers like Coinmama are another option. Although brokers charge higher fees, they offer a user-friendly way to buy crypto with fiat currency using bank account debit cards or bank transfers.
Can I Legally Buy Crypto in Hong Kong?
In Hong Kong, crypto-enthusiasts and investors can purchase cryptocurrency through crypto-ATMs, bank transfers, crypto trading platforms, and individual holders.
However, things may not be this way for much longer.
The SFC is ushering in a new authority around crypto exchanges and their availability to retail traders.
If this change takes place, retail crypto traders will be unable to purchase bitcoin or any of their favorite digital currencies on exchanges or through crypto-ATMs.
Do I Have to Pay Taxes in Hong Kong Crypto Exchange?
Hong Kong offers a tax advantage for cryptocurrency investors compared to some other countries. In many places, in regards to profits on trades and investments, countries have what's called a Capital Gains Tax.
This tax makes it mandatory for investors to pay taxes on financial investments they sell if they net a profit.
Unlike other countries, Hong Kong has no capital gains tax on cryptocurrency, so you don't pay taxes on profits from simply buying and selling cryptocurrencies.
However, individuals who trade frequently are still subject to tax payments.
If an individual or business profits from crypto-trading on a regular basis in Hong Kong, this is considered income.
Income tax in Hong Kong can be as high as 17%.
The Inland Revenue Department of Hong Kong (IRD) is tasked with collecting taxes from cryptocurrency in the area.
Regulations for Virtual Asset Trading Platforms
In June 2023, after discussions with the cryptocurrency industry and other stakeholders, Hong Kong implemented a new licensing regime for Virtual Asset Trading Platforms (VATPs). There is a transitional period until May 31, 2024, for existing VATP operators to comply.
The two-tiered licensing regime has different requirements for different types of platforms. It aims to regulate crypto trading and promote a secure environment. The goal is to promote investor protection and manage risks associated with crypto trading.
A licensed crypto platform operating in the Hong Kong market may accept deposit methods like a bank transfer to purchase cryptocurrency.
Any exchange operating in Hong Kong must apply for a special license with the SFC. The SFC licenses centralized VATP exchanges operating in or targeting Hong Kong, contributing to market stability and investor protection.
Retail Investor Restrictions
While the SFC discourages retail investment in crypto due to its risks, there is no complete ban. However, as of April 2024, access to these services through licensed exchanges is limited to investors with a portfolio exceeding HKD 8 million (around $1 million). Retail investors can still do crypto exchange—like trading bitcoin—through other means, such as P2P transactions.
Cryptocurrency AML/CFT Laws, Rules, and Regulations
In December 2022, Hong Kong implemented a new regulatory framework for cryptocurrencies. This move, prompted by amendments to their AML/CFT Act, aimed to bring the industry under the supervision of the SFC. As a result, all virtual asset service providers (VASPs) in Hong Kong must now be licensed by the SFC to operate legally. This licensing requirement came into effect on April 1, 2023.
The SFC has the authority to impose various conditions on the licenses granted to cryptocurrency exchanges and businesses. These conditions cover areas such as risk management, AML/CFT compliance, the business's financial resources, cybersecurity measures, and other relevant aspects.
There are strict sets of rules that exist around cryptocurrency when it comes to anti-money laundering and funding terrorism in Hong Kong.
Hong Kong is a Financial Action Task Force (FATF) member and follows the world's watchdog compliance recommendations regarding cryptocurrency.
The SFC enforces these AML/CFT regulations in cooperation with the Hong Kong Monetary Authority (HKMA) and other regulatory bodies.
Under AML/CFT regulations, all individuals and businesses are obligated to report any suspicious or illegal activities to proper authorities in conjunction with FATF recommendations.
Activities such as drug trafficking, organized crime, and crimes pertaining to the United Nations Ordinance are taken very seriously.
Cryptocurrency exchanges and any other entity that passes funds through Hong Kong's jurisdiction hold a legal responsibility to report these activities to AML/CFT authorities.
Failure to submit SARs (Suspicious Activity Reports) can result in a three-month jail sentence and a fine of over HKD 50,000.
Rules and Regulations for Mining Crypto in Hong Kong
When cryptocurrency is mined, new blocks are created on the blockchain.
This process also includes verifying various transactions and collecting “block-rewards” of cryptocurrencies.
These block rewards are what make crypto mining a profitable activity.
Land in Hong Kong is extremely limited, and there are several land-use rights regarding running data centers.
Unless the operation is very small-scale, anyone interested in running a cryptocurrency mining operation should keep these rules and regulations in mind.
- The building involved in the operation must comply with the Buildings Energy Efficiency Ordinance.
- These data centers will be monitored and supervised by the Office of the Government Chief Information Officer.
Reporting Requirements for Crypto in Hong Kong
One of the most positive aspects of cryptocurrency regulations in Hong Kong is that transactions of certain amounts don't have to be reported.
Regardless of the size of the transaction, there is no requirement to report to any governing body or authority.
However, profits generated through cryptocurrency trading and sales are subject to income tax laws and regulations.
Declarations in tax returns are mandatory in Hong Kong and can be subject to up to 17% taxation.
It's not quite a dystopian society yet for crypto miners, but the Hong Kong government is clearly putting crypto under tighter constraints.
Takeaways
Hong Kong's government and regulatory bodies are actively promoting fintech and other innovative financial technologies, suggesting a supportive environment for cryptocurrencies in the region. However, some uncertainties remain regarding the future of crypto regulation.
Recent regulatory measures, such as the VASPs licensing requirement implemented in April 2023, demonstrate Hong Kong's commitment to fostering a secure and well-regulated crypto ecosystem.
These regulations aim to protect investors from potential risks associated with cryptocurrency investments. But, these measures, particularly restrictions on retail investor access through licensed exchanges, might hinder broader adoption.
It's important to note that the SFC is the primary authority overseeing cryptocurrency regulation in Hong Kong. Staying informed about updates and consultations from the SFC is important for anyone interested in the future of cryptocurrencies in the region.
Only time will tell if the Hong Kong government's attitude and approach towards cryptocurrency will pay off or have a damaging effect because of the restrictiveness.
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