Hong Kong's innovative regulations regarding digital assets and its recently announced pro-crypto stance are positioning it to become a crypto hub. Present calculations project its crypto revenue to grow by 14.38% annually. Breaking from China’s hard-and-fast anti-crypto policies, Hong Kong is stepping up as a leader in progressive regulatory practices.
In addition to welcoming crypto service providers and exchanges, the Hong Kong Monetary Authority (HKMA) has gone as far as to urge banks to provide financial services to crypto firms. A 2022 statement released by the Financial Services and the Treasury Bureau of Hong Kong gave a concretized description of the government’s stance on crypto:
“As an international financial centre, Hong Kong is open and inclusive towards the global community of innovators engaging in VA businesses”.
Hong Kong’s long history of fostering technological innovation makes this new wave of pro-crypto developments a natural step in the direction towards a robust crypto ecosystem.
Overview of Crypto Taxes in Hong Kong
While at present there does not exist precise guidance on how crypto is to be taxed in Hong Kong, the government has issued definitions of virtual assets that classify them within the pre-existing tax code. Virtual assets fall under the categories of either payment tokens, security tokens, or utility tokens.
A major advantage for companies and individuals based in Hong Kong is that worldwide income is not taxed- only income generated from profits earned in Hong Kong is considered taxable. Additionally, there is no VAT nor are there capital gains taxes.
Determining whether crypto that is bought is taxable or not occurs at the moment of its acquisition. If it is clear that crypto has been acquired for long-term investments purposes, it is not taxable since said crypto will result in capital gains. If it is determined to have been bought for trading purposes, however, earnings from trading crypto fall under income and are thus considered taxable.
Crypto received as payment for goods or services is taxed the same as any other wages
Taxation of Crypto for Corporate Entities
The categorization of tokens is especially relevant for organizations offering contractors and employees compensation in crypto and/or investing in crypto. Depending on the classification of the digital asset, there will either be a tax levied on the transaction or it will be considered tax exempt.
If an organization is paying employee and contractor wages in crypto, these are considered to be utility tokens, and as such are taxed as any other form of income. In the case of businesses that receive crypto as a form of compensation for goods or services, the profit generated is taxed as any other business transaction. Taxes are calculated by determining the fair market value of the crypto in Hong Kong dollars at the date of its acquisition.
Non-taxable crypto remunerations occur when crypto is considered to be a security token. If a company gives equity in what Hong Kong classifies as a security token, that equity is considered to be capital, and owing to the country’s lack of capital gain taxes, it is not taxable.
For companies earning profits on crypto investments, only the profits generated within Hong Kong are subject to taxation. Any profits earned on global crypto investments are considered non-taxable.
Paying Contractors in Crypto with Rise
Hong Kong’s crypto-inclusive stance is fostering a supportive environment for the rapidly-expanding crypto industry. Many exchanges and crypto firms are now turning their attention towards establishing themselves in the region.
As Hong Kong begins its development of robust crypto infrastructure, future-facing companies need to prepare for a tectonic shift towards compensation in virtual assets.
Rise is an all-in-one payroll and compliance solution built for traditional companies and web3-native organizations alike. For companies that are ready to embrace the future of remote, global teams, Rise is here to scale your international crypto payroll and compliance.
Onboard contractors from across the globe and automate payouts in the currency of your choice while ensuring total compliance. Flexible routing enables companies to fund payroll in crypto and contractors to receive their payouts in fiat currency, or vice versa; at present, Rise supports 90 local currencies and 100 cryptocurrencies.
Schedule a demo today to learn how Rise can propel your operational performance with next-level crypto payroll and compliance.