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Taxation and information for cryptocurrency in Hong Kong

Introduction

The growing popularity of bitcoin and the technology behind cryptocurrencies and the blockchain has lead to increased demand and usage of these digital assets. With thousands of new investors and traders everyday, it’s no wonder that the people are becoming more interested about cryptocurrency in Hong Kong.

Out of this resurgent technology interest, Asia has become the focal point behind the crypto craze, with the majority of all cryptocurrency trading globally. The leading countries investing in these are China, South Korea and Japan. These three countries often rank in the top three for trading volume of popular cryptocurrencies such as Bitcoin and Ethereum, and represent a large portion of the investments within the cryptocurrency space. This is the main reason that any positive or negative news coming from Asia can significantly affect the price and demand of these digital coins, and it is attracting many investors to trade or relocate to these countries.

cryptocurrency in Hong Kong

Government regulations

Recently as cryptocurrencies have gained popularity and have been thrust into the spotlight, many governments are now catching up on regulating and accounting for these in terms of the laws and the taxation effects. Some countries are even temporarily banning these coins until they can get a hold on how to effectively regulate this trading, which is the case within South Korea and China.

The South Korean government has cracked down on the trading of cryptocurrencies, with the authorities shutting down some cryptocurrency exchanges. They have also warned their citizens about the dangers and risks of this new type of investment.

In 2017, China rightout banned the use of Initial Coin Offerings(ICO), which is similar to an Initial Public Offering(IPO) for stocks (companies issue digital coins instead of stocks to their investors). In early 2018, China has continued this effort by restricting the accessibility of international cryptocurrency exchanges within China, and also a ban on it’s citizens for the use of it.

These tighter government regulations set the stage for Hong Kong, a financial hub and investment friendly city in the heart of Asia, to take advantage of this situation in the cryptocurrency space.

Hong Kong Environment

While Hong Kong is a part of China, is it very much a separate jurisdiction with different business laws and tax structure that that of mainland China. After the handover of Hong Kong back to China in 1997 from Britain, Hong Kong officially became a part of China but retained it’s own political and economic system. This allows Hong Kong to easily connect to the Mainland, but also enjoy it’s separate political system with greater freedoms and free market economy, such as freedom of speech and access to international websites such as Google, Facebook, Youtube and others.

This one country, two systems approach allows Hong Kong to attract multinational companies, foreign investment and entrepreneurs into the city, which bolster’s its strong economy with transparency and rule of law. Another characteristic of Hong Kong’s free market economy is its tax structure for both business and individuals.

Hong Kong Tax structure

A another major advantage of Hong Kong is it’s beneficial tax structure, both for individuals, businesses and investment activities. A key aspect of Hong Kong’s taxation structure is that only activities or investments within the city are taxable by law, currently at the rate of 16.5% of profits.

There are also no sales tax, no VAT tax, no inheritance tax, no withholding tax, no capital gains tax and the territorial principle for tax in Hong Kong, which means no worldwide tax on income from abroad. Any activities outside of Hong Kong would not create assessable profits in regards to Hong Kong.

This straightforward tax systems allows for more companies to conduct business in Hong Kong, and also leads for further investments and projects within the city. As an investment center with no capital gains tax, companies and individuals are allowed to receive all of their profits from investing in financial assets.

Capital Gains Tax and Territorial Source Principle

A major perk is that Hong Kong enjoys low tax rates, such as no corporate tax, no withholding tax on dividends and interest, no inheritance tax, no sales tax, no VAT tax and no capital gains tax. The profits would also only be assessed for investments arising in or derived from Hong Kong itself.

What does this mean for Hong Kong companies investing in cryptocurrency? Depending on the specific nature and location, it could make very little or no taxation for profits from investments in cryptocurrencies.

Hong Kong and cryptocurrency

This recent activity has provided a unique opportunity for Hong Kong, which is now becoming a hotspot for technology and new cryptocurrency projects and innovation. As this negative news from these government have certainly deterred some from investing in cryptocurrency, for others it is a mere bump in the road, as they seek other locations for investing such as Hong Kong.

Imagine China, a country of over 1.3 billion people denied access to investing in the new innovative technology of cryptocurrency, with Hong Kong right on it’s doorstep. With this, Hong Kong has seen flocks of incoming investments from mainland China because of the recent regulations, as evidenced by three major cryptocurrency exchanges BTCC, Huobi Pro and OKEx moving to Hong Kong. This resulted in a significant jump in investing activity for these exchanges, as Chinese investors had already moved there and were waiting to invest in the newly relocated exchanges.

The Hong Kong government has even encouraged the education and use of cryptocurrency, with a press release in January 2018 from The Financial Services and Treasury Bureau (FSTB) and The Investor Education Centre (IEC). In the press release they outline the features, information and potential risks of ICOs and cryptocurrency for the public. They also plan to implement advertisements and education articles about these throughout the city.

Incorporating a Hong Kong Company

Hong Kong has also become one of the top places for cryptocurrency business with it’s ease to incorporate a company in Hong Kong. The process from start to have a company setup may only take a few days, or in as little as 24 hours, in some cases.

The best thing about this is you can be from any nationality to set up a company, and do not need to be a Hong Kong citizen. This is advantageous over other countries, such as Singapore or South Korea, where you need to be citizens in that country to incorporate a company.

Also, you can set up a company entirely online, with the help of a local agency. This is needed as you will need a Hong Kong company to act as your registered company secretary.

All you need to set up a company is a copy of your passport, a copy of an official proof of residence, and fill out a form with particulars of your company such as: company name, business nature, company structure (directors and shareholders) and address.

Advantages of Incorporating Hong Kong Companies

Not only is incorporating a Hong Kong company relatively straightforward and can be completed quickly, there are also other major advantages to opening up a Hong Kong company for cryptocurrency investments. Here are some of the advantages for these:

  • Hong Kong is one of the most liberal economies in the world. You don’t even need to live here to own a company and can run and operate your business in Hong Kong while sitting in any part of the world. However, you do need to hire a local company secretary and get a registered office address in Hong Kong. Both the services are offered by various reputable agencies at an affordable rate to allow you to open your company in Hong Kong.
  • The company’s registered capital is a lot less as compared to many other countries. You can choose the total value of the registered share capital, and are not legally required to deposit this amount into the company. This is one of the best advantages for Hong Kong companies, as it permits those who have a low budget to own a company without spending a lot.
  • Moreover, you do not need to worry about the language in Hong Kong or because it is a province of the People’s Republic of China. The legal system in Hong Kong is very different compared to the Mainland China and English dominates the business and legal world in Hong Kong. All documents and communication with the government, banks, agencies and other bodies can be conducted in English.
  • The last point is that Hong Kong has a very simple taxation system where there is only 16.5% tax on all the profits earned in Hong Kong, with no capital gains tax on investments. Further, if none of the business transactions arise or derive from Hong Kong, you can apply for the “profits exemption” status, making the Hong Kong environment very favorable for anyone who hopes to start a business here.

These advantages of Hong Kong companies have attracted entrepreneurs from around the world to incorporate a company in Hong Kong for their cryptocurrency activities. Along with other benefits of the Hong Kong environment, major Hong Kong cryptocurrency companies have been making waves within the crypto world.

Major Hong Kong Cryptocurrency companies

As becoming one of the hotspots for cryptocurrency projects and companies from around the world, there are now many big name companies incorporating in Hong Kong. Here is a list of some of the Hong Kong companies involved in cryptocurrency:

Cloud Mining

Genesis Mining is the largest provider of cryptocurrency mining and cloud-based blockchain companies. Founded in 2013, Genesis has grown into the biggest provider of cryptocurrency mining over the cloud, for customers interested in mining cryptocurrency but don’t want the hassle of buying the large computer mining rigs to do this. They are located in Wan Chai, Hong Kong, and have most of their computer mining rigs located in Iceland.

They currently offer 6 different cryptocurrencies to their customers: Bitcoin, Dash, Ethereum, Litecoin, Monero and Zcash. People can choose among the various plans based on their needs, with most contracts being 2 years. They have many positive reviews of being a trusted service provider of cryptocurrency cloud mining.

Cryptocurrency coins associations

Cardano (ADA), currently the 5th largest cryptocurrency coin, has been gaining traction as a major player in the cryptocurrency space with its promising technology and provided solutions through its platform. This project is lead by Charles Hoskinson, the co-founder of Ethereum (ETH).

At the heart of this project is the company, Input Output Hong Kong (IOHK), which is behind the research and development of the cryptographic algorithms and technology integration for Cardano. IOHK also works on building cryptocurrencies and blocks chains for academic institutions, corporations and government entities. They are located in Central, Hong Kong.

Digibyte is another well known cryptocurrency developed and released in 2014. This cryptocurrency focuses on fast and secure digital assets, with processing speed many times faster than Bitcoin. Digibyte is owned and founded by Jared Tate and DigiByte Holdings Limited, located in Hong Kong.

Money Remittances

BitSpark is Hong Kong money transfer company, specializing in the remittance of funds across country borders. Founded in 2014, it’s initial focus was to provide remittance services smoothly and at low fees through cryptocurrency technology through the cryptocurrency, Bitshares. However, they now provide services in compliance, business analytics and market exchange rate optimization. They now provide remittance services to over 5 countries in Philippines, Indonesia, Vietnam, Pakistan and Nigeria.They have also issued their own coin, the Zephyr (ZEPH), in their ICO in November 2017.

Cryptocurrency Exchanges

Binance is becoming the world’s biggest cryptocurrency exchange, with it’s recent rapid expansion and growth. With millions of new user’s every week, Binance is dominating the cryptocurrency market recently with it’s market share among the exchanges. After moving and establishing the company in Hong Kong due to the Chinese regulations, the company has also expanded into Korea and Japan.

Bitfinex is one of the largest Bitcoin trading platforms. Founded in 2012, it offers a wide range of cryptocurrencies over its exchange, as well as margin trading, leverage trading and advanced orders. It also has apps for the exchange on Android and iOS. With their headquarters Hong Kong, they have since relocated their main physical address to Taiwan.

OKCOIN was the largest bitcoin exchange in China. After the tight Chinese regulations, the exchange has moved to Hong Kong and renamed themselves to OKEx. With a new market and less government restrictions, they have stepped up to become a major exchange in cryptocurrency. They are located in Causeway Bay, Hong Kong.

Gatecoin is another major exchange in Hong Kong, allowing trading through BTC/ETH and Fiat currencies such as HKD and USD. They allow deposits and withdrawals for HKD and USD through their platform according to their KYC (Know your customer) and anti-money laundering (AML) compliance policies.

These are just a few of many Hong Kong based companies dealing in cryptocurrency or blockchain technology. Look out for more companies choosing Hong Kong as their preferred location in the coming years.

Conclusion

The emerging Bitcoin and cryptocurrency technology has changed how we view currency and the transfer of wealth. With this potential revolution for businesses, Hong Kong has become a financial hub for cryptocurrency technology and investments; with it’s accessibility for incorporating a Hong Kong, free market environment and simple and business friendly tax laws. If you are interested to start a company with cryptocurrency in mind, you may consider Hong Kong as a desired location for starting a company.

Disclaimer: If you would like to know more about bitcoin or cryptocurrencies, it is better to seek professional advice regarding this. Note that this is not financial advice, and we do not offer financial services and any financial advice on this. However, we can guide you to professionals who can offer these to you. Connect with us to know the details and take a smart decision for your business in Hong Kong.

Please note that it’s very difficult to open a bank account for bitcoin or blockchain related companies around the world. While Hong Kong is an advantageous place for blockchain and cryptocurrency technology, still many Hong Kong banks may not open an account for these types of companies. Therefore, we are currently working with other providers and banks to help open bank accounts for customers dealing in blockchain or cryptocurrency related businesses. Please contact us for more information on banking options or for incorporating your company in Hong Kong.