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Fintech Market Overview

This article does not constitute legal advice.

Cryptocurrencies in Hong Kong

Fintech Software

There is no specific regulatory framework for blockchain technology in Hong Kong. This technology and related businesses are subject to the existing body of Hong Kong financial laws and regulations. However, the HKMA and the SFC have issued a number of statements clarifying their regulatory stance.1

In February 2015, the HKMA stated in a press release that Bitcoin is not a legal tender but a 'virtual commodity'. Given that Bitcoin does not have any backing, either in physical form or from the issuer, it cannot be qualified as a means of payment or electronic money. The HKMA expressly stated that Bitcoin and other similar virtual commodities are not regulated by the HKMA.1

The SFC published a circular in December 2017 in relation to Bitcoin futures contracts and other cryptocurrency-related investment products, in which it warned that Bitcoin futures contracts traded on a futures exchange are regarded as futures contracts for the purposes of the SFO, even though the underlying assets of the futures contracts may not be regulated under the SFO. It was noted that other cryptocurrency-related investment products may, depending on their terms and features, be regarded as securities as defined under the SFO.1

There are no current laws or regulations that specifically deal with the laundering of cryptocurrencies and tokens. The AMLO principally applies to financial institutions (including HKMA-authorised institutions (i.e., banks, SFC-licensed corporations, licensed insurance companies, SVF issuers and money service operators)) and 'designated non-financial business and professions' (DNFBPs) (e.g., law firms). If a corporation deals with cryptocurrencies and tokens, it is not directly subject to the provisions of the AMLO, unless it falls within the definition of financial institution or DNFBP.1

In addition to the AMLO, corporations would be subject to the Drug Trafficking (Recovery of Proceeds) Ordinance (Cap 405) (DTPRO) and the Organized and Serious Crime Ordinance (Cap 455) (ORSCO), which make it a criminal offence for a person who knows, or has reasonable grounds to believe, that any 'property' (the definition of which likely encompasses Bitcoins, Ethereum and other forms of virtual commodities or virtual assets), whether in whole or in part, represents any person's proceeds of drug trafficking or crime, deals with that property. Corporations must also comply with the UNATMO in relation to terrorism financing. In general, the DTPRO, ORSCO and UNATMO require any suspected transactions involving money laundering, terrorist financing or receipts of crime to be reported to the Joint Financial Intelligence Unit by submitting a suspicious transaction report (STR). Failure to file an STR is a criminal offence.1

In general, there is no capital gains tax, withholding tax or value added tax payable in Hong Kong.1

That being said, any Hong Kong-sourced income from frequent cryptocurrency trading (e.g., Bitcoins and Ethereum, which are generally considered as 'virtual commodities' in Hong Kong) in the ordinary course of business may be treated as income in the case of individual clients and profits in the case of a corporation, and subject to income tax and profits tax, respectively, regardless of whether the trading is made in exclusive cryptocurrency or fiat-to-cryptocurrency exchanges. Pursuant to a press release dated 3 April 2019, the Inland Revenue Department (IRD) of Hong Kong does not maintain statistics specifically on tax payable by persons carrying on virtual asset-related activities and each case should be assessed on the basis of its own individual facts and circumstances. The IRD would also, if necessary, seek relevant information from other tax authorities through the exchange of information mechanism under tax treaties to assess the situation.1

Virtual currencies in Hong Kong

Fintech in Hong Kong

Fintech in other countries

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Hong Kong Fintech Lawyers

Ilya Druzhinin

Ilya Druzhinin

I have over 22 years of experience in legal practice, most of which is accompanied by e-com and fintech projects

Languages: RU EN

Notes
  1. https://thelawreviews.co.uk/title/the-financial-technology-law-review/hong-kong
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