Hong Kong is proposing tax waivers to pension and endowment funds on their crypto investment gains.
Hong Kong is preparing to exempt sophisticated investors from tax as they expand their portfolio through crypto investment. The proposal to grant tax waivers seeks to enhance Hong Kong’s appeal as the wealth management hub.
The initiative is featured in the recent consultation paper by the Financial Services and the Treasury Bureau. A recent Reuters publication shows that the Hong Kong proposal expands the scope of capital gains tax waivers to digital assets, overseas properties, and private redits.
The recent round of exemptions applies to privately offered funds and qualified single-family-owned office investment vehicles. Thursday’s proposal provides further clarity on the region’s crypto plans.
Despite the recent disclosure, the policy enforcement date is still undetermined. Financial Services and Treasury Secretary Christopher Hui first revealed the tax incentives in late October. In the statement, the Secretary reiterated the Special Administrative Region seeks to nurture a conducive environment for blockchain-related innovations and financial applications to thrive.
Per the report, Hong Kong proposes to extend the tax waivers to the endowment and pension funds. It aims to broaden the scope of assets eligible for exemptions under the family office and fund regimes.
The new initiative adds to the profits tax exemption granted to select private funds and family-owned offices. A notable departure from the existing arrangement is that the latest proposal extends the benefits to crypto-related investments. It targets to foster innovation within blockchain technology and finance.
Hong Kong Appeals to Institutions
The tax waiver consideration emerges as institutional interest for the crypto asset class surge. Notably, the institutional adoption began following the January 10 approval of spot Bitcoin exchange-traded funds (ETFs) in the US.
The region attempts to leverage some enthusiasm by making Hong Kong appealing to deep-pocketed investors to embrace domestic opportunities. Hui acknowledged in his keynote speech during FinTech Week the persistent inquiry on the incentives to nurture the digital assets sector.
The proposed policy adds to Hong Kong’s momentum in developing digital assets. In 2023, the Hong Kong government introduced the licensing framework for virtual asset trading platforms as harmonized under the Securities and Futures Commission (SFC) mandate.
The Virtual Asset Trading Platform (VATP) mandates compliance with stringent protection standards. The regulatory focus extends to the fiat-pegged stablecoins. The city’s new framework obligates the stablecoin issuers to establish a presence in Hong Kong. Additionally, the issuers should hold reserves within the local banks besides adhering to restrictions on offering interest payments.
Crypto Tax in Russia
The proposal by Hong Kong coincides with new crypto-tax-related regulatory frameworks in different jurisdictions. Notably, the Russian government approved the new federal bill on crypto transactions. The Federal Council approved a law imposing a 13%-15% income tax on crypto sales.
Unlike Hong Kong’s approach to granting tax exemptions, Russia’s framework profiles digital currency as taxable property. Interestingly, Russia extends a waiver to mining activities by exempting them from the value-added tax (VAT) scope. The mining operators should disclose the necessary details to the local authorities. The nondisclosure attracts 40,000 rubles.
Dubai Tax Policy
Dubai emerges as a tax haven for individual crypto investors by exempting them from personal income tax. This implies that Dubai residents and expatriates do not incur taxes on crypto holdings, trades, or gains. The absence of income and capital gains taxation profiles Dubai as the ideal crypto-friendly location globally.
However, businesses in Dubai are subject to different tax treatments. The entities operating crypto businesses whose annual revenue surpasses AED 375,000 are subject to a 9% corporate tax. The corporate tax was introduced last year, obligating enterprises to account for the tax when planning their operations.
The UAE portrays a forward-thinking approach by dismantling tax barriers in its broader strategy of diversifying from oil dependency. Like Hong Kong, Dubai seeks to lure startups, investors, and established companies to explore opportunities in digital finance.
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