Hong Kong is making a bold move to strengthen its position as a global hub for cryptocurrencies.
The city has proposed tax exemptions on profits from cryptocurrency investments for hedge funds, private equity firms, and family offices.
The plan is now open for public consultation for six weeks. If approved, it could make Hong Kong more attractive to international investors.
Alongside crypto gains, the exemptions would also apply to investments in private credit, overseas property, and carbon credits.
This initiative is part of Hong Kong’s broader effort to compete with other major financial centres like Singapore and Switzerland. Both countries have strong reputations for attracting global wealth with favourable tax policies.
A tax expert at Deloitte China, Patrick Yip, praised the proposal saying that these tax measures could provide “certainty” to investors and family offices. He added, “This is an important step in boosting Hong Kong’s status as a financial and crypto trading hub”.
Currently, some family offices in Hong Kong invest as much as 20% of their portfolios in digital assets. The proposed tax relief could encourage more investments of this kind, helping Hong Kong draw global liquidity into its financial system.
Competition from Singapore and Switzerland
Hong Kong is under pressure to compete with its neighbours in attracting global investors. Singapore has been especially successful in this area.
In 2020, it introduced a Variable Capital Company (VCC) framework, which has since attracted more than 1,000 investment funds.
Singapore and China are also trying to lure wealthy investors and big funds by offering lighter tax policies. These efforts are part of a growing competition across Asia to become the region’s top financial hub.
Hong Kong has responded with its Open-Ended Fund Company (OFC) structure, launched in October 2023. This initiative has already led to the creation of more than 450 funds.
Crypto analyst, Justin d’Anethan, commented on the city’s recent efforts, saying, “Hong Kong is offering tax breaks and speeding up crypto licences”. He called the move part of a broader effort to boost the local economy through cryptocurrencies.
Switzerland, known for its wealth management services, is also a strong competitor. It has long been a leader in providing favourable conditions for investors in both traditional and digital assets.
Global trends in crypto taxes
Around the world, governments are adjusting their tax policies to attract cryptocurrency investors.
For example, Italy recently lowered its tax rate on crypto gains to 28%, down from a proposed 42%. Hong Kong’s new proposal puts it in a favourable position to compete with such policies.
Meanwhile, China’s stance on cryptocurrencies is evolving. After years of strict regulations, there are signs of a shift.
In 2021, China declared all cryptocurrency transactions illegal and banned digital currencies like Bitcoin. This effectively prevented over a billion people in the country from accessing crypto markets.
However, a recent court ruling in Shanghai clarified that personal ownership of crypto is legal. While commercial activities involving cryptocurrencies remain banned, this development shows a slight change in China’s approach.
The global landscape has also been influenced by changes in the United States. Donald Trump’s re-election campaign in November 2024 focused on making the US a leader in cryptocurrency innovation. Unlike China, US regulators allow companies to use digital assets in their operations.
This approach has benefited firms like Microstrategy, which holds 386,700 Bitcoin—making it the largest corporate Bitcoin holder.
Japan has also embraced Bitcoin as a strategic reserve asset, with companies like Metaplanet following Microstrategy’s example.
Hong Kong’s proposed tax breaks come at a time of increased competition in the financial world. The city’s efforts to create a friendly environment for crypto and alternative investments could help it stand out.
By easing taxes and promoting innovation in digital assets, Hong Kong aims to attract more capital and strengthen its financial system.
If the plan works, Hong Kong could re-establish itself as a leader in the digital economy, drawing investors and innovators from around the world.
