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Hong Kong plans crypto tax break for hedge funds and billionaire families (Abridged Version)
Hong Kong plans to exempt private equity funds, hedge funds and the investment vehicles of the super-rich from paying tax on gains from cryptocurrencies, private credit investments and other assets, as it seeks to become a top offshore finance hub.
In a 20-page proposal, which was circulated this week and seen by the Financial Times, the Chinese territory’s government said taxation is “one of the key considerations” for asset managers when deciding where to base their operations and it wanted to create a “conducive environment” for them.
Hong Kong has sought to position itself as a centre for crypto businesses. Bitcoin has surged since Donald Trump won the US presidential election this month, with investors betting his return to the White House will boost the crypto industry after he championed it on the campaign trail.
The government wants to expand the range of tax-exempt investments to also include private credit, overseas property and carbon credits, according to the proposal. It is running a six-week consultation on the plans.
The proposal comes as regional rivals Hong Kong and Singapore are fighting to boost their position as top offshore finance destinations. They have been battling to woo billionaires and investors and have set up new lightly-taxed fund structures that allow them to hold large pools of capital.
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TaxDAO Commentary
In recent years, Hong Kong has maintained a relatively open stance on cryptocurrency policies, actively promoting a “digital asset-friendly policy.” As early as 2022, Hong Kong released a “Policy Declaration on the Development of Virtual Assets in Hong Kong,” planning to establish the city as an international virtual asset hub, and announced plans to relax regulatory requirements for cryptocurrency exchanges to attract more crypto businesses and investors. In addition, Hong Kong has been promoting “open-ended fund companies,” a low-tax legal structure that can hold asset pools and multiple sub-funds. According to government data, by October, more than 450 such funds had been launched.
Through this tax exemption proposal, Hong Kong further signals its intention to become a global center for digital assets and high-end asset management. The proposal is a response to the competition among financial centers like Singapore, which has attracted a large number of investors and funds in recent years through favorable tax policies. If the proposal is approved, we expect it to have the following impacts on Hong Kong’s financial market: First, it will create a favorable tax environment for asset management companies, attracting more capital into the Hong Kong market. Second, by expanding the range of tax-exempt investments to include cryptocurrencies, private credit, overseas real estate, and carbon credits, it will further solidify Hong Kong’s status as a global financial hub. As Patrick Yip, Vice Chairman of Deloitte China, pointed out, if the proposal is implemented, it will provide certainty for family offices and investors, and help enhance Hong Kong’s position as a global financial and cryptocurrency trading center.
However, the proposal still requires a six-week public consultation, and its successful implementation remains uncertain. Given Hong Kong’s increasingly flexible and innovative financial policies in recent years, this proposal is likely to pass. Looking ahead, we have reasons to believe that Hong Kong will continue to maintain its open and innovative attitude toward finance. As global financial markets evolve and investor demands diversify, Hong Kong will continue to optimize its financial policies and environment to better meet investor needs. Meanwhile, we look forward to Hong Kong making more breakthroughs and innovations in cryptocurrency and fintech, contributing further to the prosperity and development of global financial markets.
Original Link: Hong Kong plans crypto tax break for hedge funds and billionaire families