Hong Kong

Disclaimer: The regulatory information provided below is for general informational purposes only and may not reflect the most current legal developments. Cryptocurrency regulations are rapidly evolving and can change frequently. This information should not be considered legal or tax advice. Before making any business or investment decisions, please consult with qualified legal, tax, or financial professionals familiar with your specific jurisdiction and circumstances. Always verify current regulations with official government sources and regulatory bodies.

Legal Classification & Regulatory Framework

Cryptocurrency Status

Hong Kong has established itself as one of Asia’s premier regulatory environments for digital assets, adopting a comprehensive, activity-based approach rather than creating a single dedicated cryptocurrency statute. The Hong Kong Monetary Authority (HKMA) classifies cryptocurrencies as “virtual commodities” rather than legal tender, meaning the Hong Kong dollar remains the only official currency in the territory.

Virtual assets in Hong Kong are regulated based on their specific characteristics and intended use. Crypto-assets that function as securities fall under the Securities and Futures Ordinance (SFO), while those operating as payment tokens or utility tokens are governed by the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). This dual-track system allows regulators to apply existing financial frameworks while accommodating the unique nature of digital assets.

Fiat-referenced stablecoins are subject to a dedicated regulatory regime under the Stablecoins Ordinance, administered by the HKMA. This framework requires licensing for entities issuing stablecoins in Hong Kong or issuing stablecoins pegged to the Hong Kong dollar from anywhere in the world. The regime mandates strict reserve management, requiring issuers to maintain full backing of circulating stablecoins with high-quality, liquid assets.

Tax Treatment

Hong Kong offers one of the most favourable tax environments globally for cryptocurrency investors and businesses. The territory does not impose a capital gains tax, meaning individual investors who purchase and hold virtual assets for long-term investment purposes generally face no tax liability on profits from disposal.

However, the Inland Revenue Department (IRD) applies established “badges of trade” principles to distinguish between capital gains and business income. Profits arising from frequent cryptocurrency trading conducted as a business activity are subject to Profits Tax, with rates of 16.5% for corporations and 15% for unincorporated businesses. Only Hong Kong-sourced income falls within the tax net, following the territory’s territorial taxation principle.

The IRD has issued Departmental Interpretation and Practice Notes (DIPN 39) providing guidance on the taxation of digital assets. Cryptocurrency received as employment remuneration is taxable at its market value at the time of receipt. Businesses accepting cryptocurrency as payment for goods or services must report the fair market value as taxable income. Hong Kong does not levy value-added tax (VAT) or goods and services tax (GST) on cryptocurrency transactions.

The government has also proposed expanding existing fund tax exemption regimes to include virtual assets, which would extend tax-free treatment to qualifying hedge funds, private equity funds, and family offices investing in cryptocurrencies.

Regulatory Oversight

Hong Kong’s virtual asset regulatory framework is overseen by multiple agencies working in coordination:

The Securities and Futures Commission (SFC) serves as the primary regulator for Virtual Asset Trading Platforms (VATPs), overseeing licensing, compliance, and investor protection. The SFC enforces strict requirements including client asset segregation, cybersecurity standards, and anti-money laundering protocols. All centralised cryptocurrency exchanges operating in or marketing to Hong Kong must obtain an SFC licence.

The Hong Kong Monetary Authority (HKMA) functions as the central banking institution and oversees the stablecoin regulatory regime. The HKMA also provides guidance for authorised institutions engaging with crypto-assets and administers the Fintech Supervisory Sandbox.

The Financial Services and the Treasury Bureau (FSTB) coordinates policy development and legislative proposals, working closely with both the SFC and HKMA to create a unified regulatory framework.

The Legislative Council passes and approves legislation related to financial markets, including the AMLO amendments that established the current licensing regime and the Stablecoins Ordinance.

Business Environment

Banking Relationships

Hong Kong’s banking sector has progressively increased engagement with the regulated cryptocurrency industry. The HKMA has issued comprehensive guidance encouraging authorised institutions to develop relationships with licensed virtual asset service providers while maintaining robust risk management practices.

Licensed virtual banks operating in Hong Kong have shown particular openness to serving crypto-related businesses, providing an alternative to traditional banking relationships. The HKMA has published guidance on the provision of digital asset custody services, clarifying expectations for banks wishing to offer custody solutions for institutional clients.

Banks and other authorised institutions may offer cryptocurrency-related services to clients, subject to appropriate risk assessments and compliance with anti-money laundering requirements. The regulatory clarity provided by the licensing regime has helped legitimate crypto businesses establish banking relationships, though individual banks retain discretion in their client acceptance policies.

Licensing Requirements

Hong Kong operates a comprehensive licensing framework for virtual asset activities:

Virtual Asset Trading Platforms (VATPs) must obtain a licence from the SFC to operate cryptocurrency exchanges offering crypto-to-fiat or crypto-to-crypto trading services. Applicants must demonstrate paid-up share capital of at least HK$5 million, maintain adequate insurance coverage, implement robust cybersecurity measures including cold storage of at least 98% of client assets, and pass “fit and proper” assessments for directors and responsible officers.

Stablecoin Issuers require a licence from the HKMA to issue fiat-referenced stablecoins in Hong Kong or to issue Hong Kong dollar-pegged stablecoins from any location. Licensees must maintain minimum financial resources including HK$25 million paid-up share capital and establish comprehensive reserve management arrangements.

Virtual Asset Fund Managers seeking to manage portfolios investing in virtual assets must obtain appropriate licences from the SFC and comply with the Joint Circular on Intermediaries’ Virtual Asset-Related Activities.

The government has published consultation papers on proposed licensing regimes for virtual asset dealers (covering over-the-counter trading services) and virtual asset custodians, with legislative proposals expected to be introduced to the Legislative Council in the near future.

Innovation Support

Hong Kong actively promotes fintech and blockchain innovation through multiple government initiatives:

The Fintech Supervisory Sandbox (FSS), launched by the HKMA, allows banks and technology firms to conduct pilot trials of fintech initiatives with limited customer participation before achieving full regulatory compliance. The sandbox has evolved through multiple versions, with FSS 3.0 and 3.1 providing funding support for qualifying projects.

The SFC Regulatory Sandbox provides a confined environment for qualified firms to test innovative financial products under SFC supervision before wider deployment.

Cyberport, a government-owned digital technology hub, hosts the territory’s largest fintech and Web3 community with over 440 companies, including three unicorns. Cyberport provides incubation programmes, funding support, and co-working facilities specifically targeting blockchain and cryptocurrency enterprises.

The SFC has established the Virtual Asset Consultative Panel (VACP) to facilitate dialogue between regulators and licensed VATPs, identifying policy priorities and supporting market development while maintaining investor protections.

The government’s Fintech 2025 strategy and the SFC’s ASPIRe roadmap outline comprehensive plans for advancing Hong Kong’s virtual asset ecosystem, including streamlined market access, adaptive compliance frameworks, and infrastructure upgrades to bridge traditional finance with blockchain innovation.

Market Characteristics

Adoption Patterns

Hong Kong has achieved several regional firsts in institutional cryptocurrency adoption. The territory launched Asia’s first Bitcoin and Ether spot exchange-traded funds (ETFs), available to retail investors through the Stock Exchange of Hong Kong. These ETFs support in-kind subscriptions and redemptions, and certain funds have received approval to stake portions of their holdings.

Licensed VATPs may now offer services to retail investors, subject to thorough suitability assessments ensuring clients understand the risks involved. The SFC has permitted licensed platforms to offer staking services and has begun allowing certain licensed managers to trade on major international cryptocurrency exchanges.

Institutional adoption continues to grow, with over 35 licensed virtual asset fund managers operating in the territory. Hedge funds, venture capital firms, and family offices increasingly incorporate digital assets into their investment strategies, attracted by Hong Kong’s regulatory clarity and favourable tax treatment.

Industry Focus

Hong Kong’s cryptocurrency industry demonstrates particular strength in several areas:

Asset Management and Trading: The territory’s deep pool of Asian investors and sophisticated financial infrastructure supports a thriving ecosystem of virtual asset funds, trading platforms, and advisory services.

Tokenisation: Hong Kong has pioneered the tokenisation of traditional financial instruments, with the government issuing tokenised green bonds and regulators providing clarity for tokenised securities, funds, and real-world assets.

Stablecoin Development: The comprehensive stablecoin regulatory framework positions Hong Kong as a potential hub for compliant stablecoin issuance, with government support for testing licensed stablecoins in public sector applications.

Cross-Border Finance: Hong Kong’s role as a gateway to Mainland China and the broader ASEAN region makes it attractive for blockchain-based cross-border payment and settlement solutions.

Regulatory Evolution

Hong Kong’s regulatory approach has evolved from an initial opt-in framework to a mandatory licensing regime, reflecting the government’s commitment to establishing the territory as a trusted international virtual asset hub. The current framework emphasises the principle of “same business, same risks, same rules,” applying traditional financial safeguards to virtual asset activities.

The regulatory trajectory continues to expand, with proposals under consultation for virtual asset dealing and custody services expected to complete Hong Kong’s comprehensive framework for centralised digital asset activities. The government has also signalled intentions to review legal and regulatory frameworks for tokenisation, focusing initially on bonds and drawing on global best practices.

Hong Kong maintains active participation in international regulatory coordination, including membership in the Global Financial Innovation Network (GFIN) and cross-border testing arrangements with regulators in Mainland China and other jurisdictions. The territory’s approach seeks to balance innovation promotion with robust investor protection, positioning Hong Kong competitively against other aspiring crypto hubs while maintaining the stability and trustworthiness expected of an international financial centre.

For Current Information:

• Securities and Futures Commission (SFC): https://www.sfc.hk/en/Rules-and-standards/Virtual-assets
• Hong Kong Monetary Authority (HKMA) – Stablecoin Issuers: https://www.hkma.gov.hk/eng/key-functions/international-financial-centre/stablecoin-issuers/
• HKMA – Fintech Supervisory Sandbox: https://www.hkma.gov.hk/eng/key-functions/international-financial-centre/fintech/fintech-supervisory-sandbox-fss/
• Financial Services and the Treasury Bureau (FSTB): https://www.fstb.gov.hk/en/
• Inland Revenue Department – DIPN 39 (Digital Asset Taxation): https://www.ird.gov.hk/eng/
• Cyberport (Web3 and Fintech Hub): https://www.cyberport.hk/en/digital_tech/finance