A recurring theme in crypto is that people want to do new financial things, regulators aren’t sure about those things, the things happen anyway, then regulators come in with a hammer. Except in Hong Kong. Hong Kong has opted for a different model, more like: “here are the rules, please follow them.”
They’ve created a system where crypto companies know what’s expected of them—AML compliance, cybersecurity measures, proper record-keeping—without banning the entire industry or pretending it doesn’t exist.
Even better, they’ve maintained their tax advantages: no capital gains tax, territorial taxation, and competitive rates on profits. It’s almost like they looked at the global financial landscape and decided “we’d like to be competitive in this growing sector.” What a concept!
Of course, “crypto-friendly” doesn’t mean “anything goes”—there are still plenty of ways to mess up. This guide walks through how to take advantage of Hong Kong’s regulatory regime without accidentally violating it.
Why Hong Kong
Through its tax structure alone, Hong Kong presents a compelling case for crypto businesses: absence of capital gains tax and VAT/GST, competitive corporate tax rates, and taxation restricted to Hong Kong-sourced profits.
The city has a reputation for business efficiency. With streamlined company registration and consistently high rankings in ease-of-doing-business indices, Hong Kong removes administrative barriers that often plague crypto startups in other regions.
Beyond low taxes and ease of doing business, Hong Kong’s Securities & Futures Commission (SFC) provides something even rarer in the crypto world: regulatory clarity. Their comprehensive guidelines for virtual asset portfolio managers and exchanges create a framework where businesses can plan long-term strategies rather than spending half their budget reacting to regulatory shifts.
Last but not least, Hong Kong’s geographic position makes it the ideal gateway to Asian markets. Its strategic location places it within a 5-hour flight radius of over 3 billion people across Asia, providing easy access to the world’s largest concentrations of cryptocurrency users and investors.
The Basics
Before launching your crypto venture in Hong Kong, understanding the fundamental requirements is essential:
Licensing Requirements
Certain cryptocurrency activities require a license from the SFC. Virtual asset trading platforms and portfolio managers typically need specific licenses to operate legally.
Company Structure
A private limited liability company is often the preferred legal structure for cryptocurrency businesses in Hong Kong, offering protection and flexibility.
Shareholders & Directors
At least one shareholder and one director are required to establish a company. These can be the same person, and there are no nationality restrictions.
Minimum Share Capital
Some crypto-related business activities, such as Virtual Asset Trading Platforms (VATPs), Virtual Asset Portfolio Managers, Licensed Broker-Dealer (SFC Type 1 License), Licensed Automated Trading Services (ATS) Provider (SFC Type 7 License), Crypto Custody Services, and Crypto Payment Services (SVF License – HKMA), may require minimum share capital, particularly for licensed activities.
Tax Rate
A profit tax rate of 8.25% applies to the first HK$2 million of assessable profits, and 16.5% is applied to remaining profits—one of the most competitive rates globally.
Financial and Legal Regulations
Cryptocurrency companies operating in Hong Kong must comply with specific financial and legal regulations to ensure smooth operations.
1. Anti-Money Laundering (AML) & Counter-Terrorist Financing (CTF) Compliance
Crypto companies are required to conduct customer due diligence, monitor transactions, and report any suspicious activities to the relevant authorities.
2. Cybersecurity Measures
Businesses must implement robust cybersecurity protocols to protect customer assets and data from cyber threats. This includes securing digital wallets, implementing encryption protocols, and regularly auditing security systems.
3. Data Protection Compliance
Companies handling personal data must comply with the Personal Data (Privacy) Ordinance, ensuring that customer information is collected with proper consent and that individuals have the right to access their data.
4. Compliance with SFC Guidelines
The SFC’s guidelines regulate virtual asset portfolio managers and cryptocurrency exchanges, covering capital adequacy, risk management policies, and disclosure obligations.
5. Corporate Governance Requirements
Cryptocurrency companies in Hong Kong must maintain proper financial records, conduct regular board meetings, and ensure operational transparency.
Taxation
While many jurisdictions treat crypto profits as a piggy bank to raid, Hong Kong’s tax approach might actually let you keep most of your gains. Here’s what you need to know.
Corporate-Level Taxation
- Taxable Income: Profits from trading cryptocurrencies, NFTs, or tokens are considered trading income and are subject to Hong Kong’s profits tax at 16.5%.
- Capital Gains Tax: Hong Kong does not impose capital gains tax. If a company holds these digital assets as long-term investments, profits from their sale may not be taxed.
- Reporting Requirements: Companies must maintain accurate records of cryptocurrency transactions, including acquisition costs, sales proceeds, and holding periods.
- Initial Coin Offerings (ICOs) & Fundraising: Proceeds from ICOs may be subject to profits tax, depending on how the funds are utilized.
Individual-Level Taxation
- Personal Income Tax: Individuals who frequently trade cryptocurrencies, NFTs, or tokens may have their income classified as personal income, subject to progressive tax rates of up to 17%.
- Capital Gains: Similar to corporate entities, individuals in Hong Kong do not face capital gains tax on crypto holdings unless they are actively trading as a business.
- Airdrops & Staking: Income earned from airdrops or staking may be taxable, and individuals should be prepared to report such transactions.
- Record-Keeping Obligations: Individuals must maintain detailed transaction records, including purchase prices, sale proceeds, and related expenses, to support their tax filings.
Documentation
To ensure regulatory compliance, cryptocurrency companies in Hong Kong must maintain comprehensive financial records.
Financial Documents:
- Bank and credit card statements
- Sales invoices and revenue transactions
- Supplier bills, payroll records, and MPF statements
- Fixed asset and inventory transaction details
- Loan, investment, commission, and lease agreements
Crypto-Specific Documents:
- SFC licenses (if applicable)
- Public keys for cryptocurrency wallets
- Wallet transaction statements
- Internal control documentation on risk management, compliance, governance, and cybersecurity
The Hong Kong Edge
Hong Kong offers a robust financial infrastructure, a favorable tax regime, and a clear regulatory framework, making it one of the best destinations for crypto businesses. The city provides an ideal balance of regulatory oversight and business flexibility, ensuring that companies can operate efficiently while maintaining compliance with legal and tax obligations.
However, as regulations continue to evolve, it is essential for cryptocurrency businesses and investors to stay updated on regulatory changes and ensure they meet all compliance requirements. Proper record-keeping, corporate governance, and cybersecurity measures are critical to avoiding regulatory penalties and maintaining a stable business environment.
Need Help Navigating Crypto Regulations in Hong Kong? Contact Monx
Understanding and complying with Hong Kong’s crypto regulations can be complex. Whether you need assistance with company setup, tax planning, compliance, or licensing, Monx can provide expert guidance tailored to your needs.
Get in touch with us to ensure your crypto business is set up for success!
