Crypto Tax Exemption Plan to Put Hong Kong Ahead in Competition for Investment

Hong Kong is considering a capital gains tax exemption for crypto investments held by hedge funds, private equity funds and some family offices, according to a report from the Financial Times.

The plan to make crypto tax-free for investment firms and super-rich families is part of a 20-page proposal that circulated among financial media in the past week. The document reportedly outlines a plan to reduce taxes across a range of investments in an attempt to shore up Hong Kong’s status as a global finance and wealth management hub.

The news comes amid what many believe is the early stages of a cryptocurrency bull market. Following the re-election of Donald Trump earlier this month crypto has boomed and many believe the market will climb further as Trump implements what’s expected to be a pro-crypto agenda. Hong Kong looks to be preparing to be able to outcompete regional rivals, such as Singapore, to attract that sweet, sweet crypto capital.

Related: Hong Kong Government to Issue First AI Finance Policy, Set to Transform Trading and Crypto Sectors

Hong Kong Proposal Would Make Many Assets Tax-Free (For the Rich)

In addition to making crypto tax-free, the proposal — which comes from Hong Kong’s Financial Services and the Treasury Bureau — also suggests broadening the territory’s capital gains tax exemption to include overseas real estate investments, carbon credits and private credit. 

These exemptions would only apply to privately-offered funds and ‘eligible single family offices’. So, it won’t benefit ordinary retail investors. The proposal says there will be a six week consultation period in which the government will seek feedback from stakeholders.

The Financial Times reported the proposal indicates Hong Kong’s government believes taxation is one of the “key considerations for asset managers”, and that it’s committed to creating a “conducive environment” for the industry. 

Patrick Yip, Deloitte China’s vice chair and international tax partner, said that if implemented the capital gains tax exemption would “provide certainty” to family offices and investment funds, adding:

This is an important step in boosting Hong Kong’s status as a financial and crypto trading hub.

Patrick Yip, Deloitte China’s vice chair and international tax partner

According to Reuters, Hong Kong remains the Asian leader when it comes to the number of funds and is second overall when it comes to private equity funds total assets under management. The city is also home to over 2,700 single-family offices, over half of which have assets valued at over US$50 million (AU$77m).

Competition To Attract Crypto Heating Up

Hong Kong is part of a global race to attract crypto inflows as the industry gains more widespread adoption. The re-election of Donald Trump, with his raft of pro-crypto policies and big talk about making the US the “crypto capital of the planet” has turbo-charged sentiment around crypto and intensified competition to attract crypto investment.

Sources close to Trump’s transition team have claimed that the president-elect is considering implementing a capital gains tax exemption on Bitcoin and US-made cryptocurrencies, potentially triggering something of a cryptocurrency golden age in the US. 

Related: Trump Administration Taps CFTC for Top Crypto Role in Major Overhaul of Digital Asset Oversight

Trump has also stacked his administration with pro-crypto figures, is apparently considering making the more innovation-friendly Commodity Futures Trading Commission (CFTC) the primary regulator of crypto and is expected to install pro-crypto candidates to head other regulatory agencies like the Securities and Exchange Commission (SEC).