Originally published on: November 28, 2024
Hong Kong is making a strategic move to solidify its position as a top crypto financial hub by proposing tax breaks for cryptocurrency gains. The proposal aims to exempt hedge funds, private equity firms, and family investment vehicles from taxes on their crypto profits in an effort to compete with regional rivals such as Singapore and Switzerland.
This initiative, currently in a six-week consultation period, also includes exemptions for investments in private credit, overseas property, and carbon credits, as reported by the Financial Times. By offering these tax incentives, Hong Kong hopes to attract more global liquidity and enhance its digital economy in a bid to stay ahead in the competitive financial landscape.
In recent years, Singapore and Switzerland have implemented similar tax breaks and structures to attract investors and funds to their respective jurisdictions. Singapore’s Variable Capital Company (VCC) framework has become home to over 1,000 funds, while Hong Kong’s Open-Ended Fund Company (OFC) structure has already seen the launch of over 450 funds since October 2023.
If Hong Kong’s proposal is approved, it could position the city as a viable offshore financial center for digital and alternative assets by reducing taxation burdens. Analysts believe that this move could bolster the Asian crypto market by attracting more capital inflows to Hong Kong.
Industry experts like crypto analyst Justin d’Anethan see Hong Kong’s tax breaks and accelerated crypto licensing as catalysts for future growth. This sentiment is further supported by the recent introduction of a new crypto service by ZA Bank, Hong Kong’s largest virtual bank, allowing retail users to directly buy and sell Bitcoin and Ether using fiat currencies.
Calvin Ng, alternate chief executive at ZA Bank, emphasized that the new crypto service was launched in partnership with HashKey crypto exchange to meet regulatory requirements and bridge the gap between crypto and traditional banking. This development underscores Hong Kong’s commitment to embracing the digital economy and integrating cryptocurrencies into its financial ecosystem.