FT: Hong Kong to abolish crypto profits tax to attract institutional investors

What’s new? Hong Kong authorities have prepared a tax reform, under which private equity funds, hedge funds, and investment structures of super-rich individuals will be exempted from paying tax on cryptocurrency profits. The document is intended to make Hong Kong a leading offshore financial center. The authors emphasize that they would like to create a favorable environment for asset managers who consider taxation as one of the key factors when deciding where to locate a company.

Material by FT

What else is known? Under the proposal, the government wants to broaden the range of tax-free investments to also include private credit, overseas real estate, and carbon credits. The government is currently holding a six-week consultation on the plans.

Deloitte senior executive Patrick Yip said in comments to the FT that the move would boost Hong Kong’s status as a financial and crypto trading hub. Already, the share of crypto assets in the portfolios of some local family offices reaches 20%.

Hong Kong’s main competitor in the region is Singapore, which also seeks to attract investors through low taxes.

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Many wealthy Chinese set up private investment companies outside mainland China because of its government’s policies. However, Singapore’s anti-money laundering policies have deterred some investors, as stricter checks have slowed down the process of opening family offices. In this situation, Hong Kong, as a special administrative region of the PRC with its own laws, can offer an alternative to mainland Chinese investors.

Since last year, Hong Kong authorities have been campaigning to turn the district into a crypto hub as a counterbalance to the PRC, where crypto transactions and mining are banned. In particular, Hong Kong began licensing crypto exchanges to serve retail customers and approved bitcoin and Ethereum-based spot exchange-traded funds (ETH) — the latter even earlier than in the United States.

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In addition, back in July, local authorities, following Donald Trump, began exploring the possibility of creating a national bitcoin reserve. After Trump’s victory, discussions about it started in South Korea, the UK, and Brazil, and the presidential candidate of Suriname promised to replace the national fiat currency with bitcoin in case of victory.