Hong Kong Issues Crypto Tax Guidance: What You Need to Know in 60 Seconds!

The Hong Kong tax authorities just released last Friday new crypto tax guidance (Revised DIPN 39).

If you just have 1 minute, this is what you need to know:

-         The Inland Revenue Department (IRD) recognises 3 types of digital tokens (payment, security and utility tokens) and the profits tax treatment will depend on their nature and use.

-         For ICOs - the substantive nature of the token itself will determine its classification and not the stated intention of the issuer.

-         For ICO/STO issuers - the tax treatment of the proceeds from an ICO generally follows from the attributes of the tokens that are issued. It is the nature of the rights and obligations of the tokens, not the form in which the tokens are issued, that determine the tax treatment. For example, for a security token STO, proceeds would be capital in nature. For a utility token ICO, proceeds would be viewed as a prepayment for future goods or services and recognition would depend on details of the issuer’s performance obligations.

-         Crypto held as investment - If digital assets are bought for long-term investment purposes, any profits from disposal would not be chargeable to profits tax.

-         Crypto businesses in Hong Kong - HK sourced profits from cryptocurrency business activities are chargeable to profits tax.

-         Use of crypto in business - A person engaging in a business may conduct transactions using cryptocurrency for various purposes. The market value of the cryptocurrency accrued at the date of transaction should reflect the amount of sales and purchases.

-         Salary in crypto – Employees may receive salary in cryptocurrency. The same salaries tax treatment would apply to such income from employment even though it is paid in cryptocurrency. The amount to be reported as the employee’s employment income should be the market value of the cryptocurrency at the time of accrual.

The IRD guidance is available here: https://www.ird.gov.hk/eng/pdf/dipn39.pdf

Hope the above is useful. Feel free to reach out if you want to discuss.

Henri Arslanian

*Please note that this article reflects the author’s personal views and should not be seen as legal, tax or regulatory advice.

About the author:

Henri Arslanian is the PwC Global Crypto Leader and Asia FinTech Leader, the Chairman of the FinTech Association of Hong Kong and an Adjunct Associate Professor at the University of Hong Kong, where he teaches the first FinTech university course in Asia.

With over 500,000 LinkedIn followers, Henri is a TEDx and global keynote speaker, a best-selling published author and is regularly featured in global media, including Bloomberg, CNBC, CNN, the Wall Street Journal and the Financial Times.

Henri was named by LinkedIn as one of the global Top Voices in Economy & Finance and is the host of the FinTechCapsules? and CryptoCapsules? social media series.

He has also been awarded many industry and academic awards over the years, from being regularly named one of the Most Influential Individuals in FinTech in Asia to being awarded the Governor General of Canada Gold Medal for Academic Excellence. Chambers Global recently named him the “highest-profile FinTech consultant in Hong Kong” and Asian Private Banker awarded him the “FinTech Changemaker of the Year” award.

Henri’s latest book, The Future of Finance: The Impact of FinTech, AI and Crypto on Financial Services, published by Palgrave Macmillan, was ranked as one of Amazon’s global top 10 best-sellers in financial services and was recognized as one of the “Best FinTech Books of All Time” by Bookauthority.

Before joining PwC, Henri was with a FinTech start-up and previously spent many years with UBS Investment Bank in Hong Kong. Henri started his career as a financial markets and funds lawyer in Canada and Hong Kong.

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