How to Legally Deal With Cryptocurrency in Hong Kong

Currently, retail investors are allowed to purchase and trade cryptocurrency in Hong Kong.

However, cryptocurrency is considered a virtual commodity and not legal tender. 

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
  • When it comes to transactions for crypto-exchanges, the SFC (Securities and Futures Commission) 
  • AML (Anti-Money Laundering) and CFT (Counter-Financing of Terrorism) laws apply to every person and business in Hong Kong, regardless of the activity

Can I Legally Buy Crypto In Hong Kong?

In Hong Kong, crypto-enthusiasts and investors can purchase cryptocurrency through crypto-ATMs, exchange 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 their favorite digital currencies on exchanges or through crypto-ATMs.

Do I Have to Pay Taxes on Crypto in Hong Kong?

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.

However, there is no Capital Gains Tax in Hong Kong. 

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 Cryptocurrency Exchanges

If the new regime takes over in February, big changes are on the horizon for Hong Kong cryptocurrency exchanges.

Any exchange operating in Hong Kong must apply for a special license with the SFC. 

In an unprecedented rule change, exchanges will only accept accredited professional investors with more than 8 million HKD as investors.

Before this proposed rule change, only exchanges that sold Security Tokens had to apply for a special license. 

Cryptocurrency AML/CFT Laws, Rules, and Regulations

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 FATF (Financial Action Task Force) member and follows the world’s watchdog compliance recommendations regarding cryptocurrency. 

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 50,000 HKD. 

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. 

Takeaways

With Hong Kong’s government and other regulatory bodies embracing the promotion of fintech and other cutting-edge financial technology, one would assume the future looks bright for cryptocurrency in the region.

However, there are uncertainties because of the new restrictions and laws looming for Hong Kong in February. 

For a country seeking to push the benefits and commodities of cryptocurrency, it almost seems like Hong Kong’s strategies will prove to be counterproductive.

While the government does seem proactive in its attempts to promote the positives in fintech and crypto, placing such strict regulations on digital currencies could make it difficult for the majority of citizens to take advantage of their use. 

For the time being, citizens of Hong Kong are still able to enjoy the use of cryptocurrency freely.

If the proposed changes take effect, they won’t do so until February of 2022.

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.

Are you a business that’s looking to deal with cryptocurrency?

In Hong Kong, you’ll need a license to do just that.

Open your business in Hong Kong with Air Corporate and we’ll help you get the right licenses for your business.

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