Crypto License in Hong Kong
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.
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.
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Advantages of obtaining a cryptocurrency license in Hong Kong
Crypto activity in Hong Kong offers several advantages:
- Regulatory structure. Hong Kong has established a clear regulatory structure for cryptocurrency-related activities.
- Business-friendly environment. Hong Kong is known for its business-friendly environment and robust legal system. Setting up a business related to cryptocurrency is relatively easy, with well-defined procedures and effective support from the government. There is also no capital gains tax on cryptocurrencies in Hong Kong.
- Access to capital. Hong Kong is a global financial center with a diverse range of investors and venture capitalists. Getting a cryptocurrency license in Hong Kong provides access to a huge number of potential investors and funding opportunities, allowing businesses to secure the capital they need to grow and develop.
- Reputation and credibility. Obtaining a cryptocurrency license in Hong Kong increases the credibility and trustworthiness of a business, which can attract institutional investors and partnerships. A strong regulatory structure and adherence to international standards contribute to Hong Kong’s reputation in the global cryptocurrency community.
- Ecosystem support. Hong Kong has a vibrant cryptocurrency community, with many startups, industry events, and networking opportunities. Associations and incubators specializing in the blockchain industry complement the ecosystem, fostering collaboration and innovation.
- International access to markets. Hong Kong is a gateway to both Asian and global markets. With established relationships, ease of doing business, and robust infrastructure, companies with a cryptocurrency license in Hong Kong can expand beyond the local market and attract an international customer base.
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.
Requirements for Obtaining a Crypto License in Hong Kong
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:
- conduct a business that provides any virtual asset services (VA);
- represent themselves as a business providing VA services;
- perform regulated functions for a business providing VA services;
- represent himself or herself as an individual performing such regulated functions;
- advertise VA services.
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:
- regularly making offers to sell or buy virtual assets resulting in a binding transaction;
- regularly introducing persons or identifying them to others to negotiate or transact sales or purchases of virtual assets resulting in a binding transaction;
- where client money or client virtual assets come into the direct or indirect possession of the provider of such services.
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.
Crypto license lawyers in Hong Kong
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The process for obtaining a crypto license in Hong Kong
To obtain a license in Hong Kong, the applicant must:
- Express intention to provide services in the Hong Kong market.
- Pass a fit and proper test, which includes verification of:
- absence of any criminal record;
- history of AML/CFT activities;
- financial situation;
- education or other qualifications;
- the individul’s reputation, experience, character, reliability, financial integrity,
- Specify in the application at least two individuals who are deemed suitable and qualified to perform VA services and are applying for the position of responsible officers.
- Apply for approval of the premises to be used for the storage of records or documents required under the Regulation.
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.
Overview of Crypto Regulation in Hong Kong
| Project time frames | from 1 year |
| State fee for application | 10 000 USD |
| Required share capital | 640 000 to 1 mill USD |
| Corporate income tax | 8.25% tax on the first $2 million of profits and 16.5% on further profits. 0% tax can be applied for the profits generated outside Hong Kong |
| Annual supervision fee | – |
| Local staff member | AML Officer, 2 Directors |
| Physical office | Required |
| Accounting audit | Required |
| Sustainability | Sustainable |
| Bank account options | European EMIs |
Crypto regulation in Hong Kong
The key organizations regulating the cryptocurrency business in Hong Kong are the Hong Kong Monetary Authority and the Securities and Futures Commission.
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:
- Anti-Money Laundering and Terrorist Financing Act (Amendment 2022) for financial institutions. The updated Anti-Money Laundering Act complies with FATF Recommendation 15, which requires virtual asset service providers (VASPs) to be subject to anti-money laundering and counter-terrorist financing regulations.
- Securities, futures contracts, and stored value items are regulated under the Securities and Futures Ordinance.
- Guidelines for the regulation of virtual asset trading platforms. These guidelines issued by the SFC contain detailed requirements and expectations for cryptocurrency trading platforms operating in Hong Kong. They address licensing, cybersecurity, investor protection, asset custody, and regulatory compliance. You can read more about them here and here.
- SFC’s Tokenized Securities Offering Statement states that security tokens are “securities” unless an applicable exemption applies. Therefore, intermediaries that sell and distribute tokenized securities are required to ensure compliance with all existing statutory and regulatory requirements. In particular, they must comply with the Code of Conduct for Persons Licensed or Registered with the Securities and Futures Commission.
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.
FAQ on obtaining a crypto license in Hong Kong
Is crypto regulated in Hong Kong?
Yes, in Hong Kong cryptocurrency is regulated under the Anti-Money Laundering and Counter-Terrorist Financing Act, (as amended 2022). The Securities and Futures Ordinance (SFO) and other regulations regulate securities, futures contracts, and stored value objects.
What are the taxes for crypto in Hong Kong?
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.
Can you trade crypto in Hong Kong?
Yes, cryptocurrency trading is allowed in Hong Kong. There are cryptocurrency exchanges and platforms that allow users to buy, sell and exchange various cryptocurrencies.
What sanctions might a Hong Kong crypto business face?
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.
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