Hong Kong is considered one of the most attractive countries for cryptocurrency transactions because its legislation is successfully adapted to modern challenges. In addition, Hong Kong's economy and the development of its infrastructure and technology provide additional advantages in this area. Gofaizen & Sherle is ready to help with crypto business registration and obtaining a crypto license in Hong Kong
According to the latest World Cryptocurrency Readiness Report, Hong Kong has taken the lead as the most "crypto-ready" place in 2022, surpassing other countries in all categories. This includes the number of blockchain startups per 100,000 people and the number of cryptocurrencies in proportion to the population. This achievement is particularly noteworthy because Hong Kong has surpassed countries such as the U.S. and Switzerland in this ranking.
To become a global crypto center, Hong Kong has taken certain steps to regulate the industry:
Since early 2018, the Hong Kong government has expressed its support for blockchain technology, and over the past three years, the Innovation and Technology Fund (ITF) has provided funding for 18 projects related to blockchain and distributed ledger technology, totaling about $67.2 million.
In 2019, the Securities and Futures Commission (SFC) issued guidelines for security token offerings (STOs) and virtual asset trading platforms (VATPs) to ensure compliance with existing rules. In the same year, the SFC introduced a regulatory framework for cryptocurrency exchanges.
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The Hong Kong Blockchain Society is also working with government, academia, and industry to promote the legal development of blockchain through education, research, and other activities and services in and around Hong Kong, and the Hong Kong Monetary Authority (HKMA) is exploring the use of blockchain technology in its financial system. For example, the HKMA launched an e-HKD pilot program in May 2023, in which 16 companies were selected to explore the application of digital currency in 14 projects.
It is also worth mentioning that Hong Kong is home to several cryptocurrency exchanges, such as BitMEX, OKEx, and Bitfinex.
Crypto activity in Hong Kong offers several advantages:
These advantages combine to make Hong Kong an attractive destination for businesses looking to operate in the cryptocurrency industry and take advantage of the opportunities on offer.
Until recently, Hong Kong's government authorities took a neutral stance on licensing cryptocurrency exchanges in the country. However, according to the recent amendments to the Anti-Money Laundering and Counter-Terrorist Financing Act passed in December 2022, new regulations for cryptocurrency in Hong Kong came into force on April 1, 2023. According to them, all virtual asset service providers (VASPs) must obtain a crypto license from the Securities and Futures Commission (SFC) for legal cryptocurrency activities.
A person or company who has not obtained a license may not:
The Hong Kong Securities and Futures Commission (SFC) began accepting applications for cryptocurrency trading platform licenses on June 1, 2023.
According to the Decree, VA services include the following, while using electronic means:
Cryptocurrency trading platforms that allow trading in financial products (securities and futures contracts) are not subject to the new licensing system, as they are already regulated under the Securities and Futures Ordinance (SFO).
It is important to note that the new licensing system applies to all cryptocurrency exchanges registered in Hong Kong under the Companies Ordinance (Chapter 622). This includes exchanges based outside of Hong Kong but actively attracting Hong Kong citizens.
To obtain a license in Hong Kong, the applicant must:
The Securities and Futures Commission (SFC) may impose any conditions on the license granted, including conditions relating to risk management, AML/CFT, financial resources, cybersecurity, and others, as detailed in Section 53ZRK of the Regulation.
The application must be filed with the Commission per established procedures and accompanied by the appropriate fees.
Our consultants would be glad to provide you more information regarding the process and timeline for obtaining a crypto license in Hong Kong.
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The Hong Kong Monetary Authority regulates virtual asset service providers (VASPs) and focuses on mitigating risks associated with money laundering and terrorist financing. It requires VASPs to implement robust AML and counter-terrorist financing measures, conduct customer due diligence and maintain appropriate record-keeping procedures.
The Securities and Futures Commission plays an important role in regulating cryptocurrency exchanges and trading platforms operating in Hong Kong. It oversees that these platforms are licensed and comply with strict regulations regarding transaction security, customer protection, and anti-money laundering (AML).
Key rules and guidelines applicable to cryptocurrency activities in Hong Kong include:
In general, cryptocurrency regulation in Hong Kong seeks to strike a balance between encouraging innovation and protecting investors' interests and the financial system's integrity.
In Hong Kong, bitcoin and other decentralized cryptocurrencies are classified as "virtual commodities" and are not recognized as legal tender. This means that investors in Hong Kong who buy and sell cryptocurrencies do not have to pay capital gains tax.
However, if crypto-assets are traded as part of the "ordinary course of business," it is treated as income and is subject to income tax. Individuals are subject to income tax at a rate of up to 16.5% and legal entities to income tax at a rate of 15%. However, Hong Kong applies the territorial principle of taxation, so the income tax is charged only if the business is conducted in Hong Kong and the profits are derived from activities in Hong Kong. Income derived outside of Hong Kong is not taxable.
Regarding taxes related to Initial Coin Offerings (ICOs), taxation depends on whether the ICO is treated as an offering of securities (e.g. investors get voting rights) or as a futures or contract for services/goods which provide a future benefit to purchasers.
More information about the taxation of crypto business in Hong Kong can be obtained from our consultants.
There are significant fines and criminal penalties for violating cryptocurrency licensing requirements in Hong Kong. Operating without a license can result in fines of up to HK$5,000,000 ($640,000), and company management can face up to seven years in prison.
Failure to comply with established anti-money laundering and counter-terrorist financing (AML/CTF) requirements by a licensed VASP and its responsible employees could result in a fine of HK$1,000,000 (US$128,000) and 2 years in prison if convicted on indictment. In addition, disciplinary action, including suspension or revocation of license, reprimand, corrective action, and a monetary fine may be imposed.