Author: Xie Yancen

【Research Scope】This report systematically reviews the tax rules for digital assets in Hong Kong from 2020 to the present. We analyze various guidelines issued by the Hong Kong Inland Revenue Department, regulatory documents released by the Securities and Futures Commission and the Monetary Authority, relevant ordinances passed by the Legislative Council, and official documents such as government policy declarations, hoping to provide readers with a comprehensive and clear regulatory landscape.

【Core Conclusion】Looking back at the development over the past few years, the tax regulation of digital assets in Hong Kong has followed a clear path: first, in 2020, the basic principles for the tax treatment of digital assets were established through DIPN 39, then various regulatory documents (trading platforms, staking services, stablecoins) were gradually completed to support tax administration, followed by the implementation of the crypto asset reporting framework (CARF) through legislation, and finally, tax incentive measures were provided through policy declarations. Overall, the trend of regulation is becoming more standardized, more transparent, and increasingly aligned with international standards.

Chapter 2 Tax Classification of Digital Assets in Hong Kong

2.1 Legal Definition

Currently, there is no specific legal definition for digital assets in Hong Kong, but various regulatory documents clearly define different types of digital assets.

In the "Interpretation and Practice Note No. 39" (DIPN 39), the term "digital assets" is used to encompass various forms of digital assets such as cryptocurrencies.

In the "Stablecoin Ordinance" (Stablecoin Ordinance 2025), stablecoins are defined as: "A digitally represented value secured by cryptographic means, expressed as a unit of account or a store of economic value, used or intended to be used as a medium of exchange accepted by the public, transferable, storable or tradable electronically, operating on a distributed ledger or similar information repository, and intended to maintain a stable value with reference to a single asset or a group/basket of assets."

In the "Implementation of the Crypto Asset Reporting Framework and Amendments to the Common Reporting Standard", crypto assets include virtual currencies (such as Bitcoin and Ethereum), stablecoins, NFTs, and other tradable crypto assets, but do not include central bank digital currencies (CBDC), defined as: "Crypto-assets refer to all transferable digital assets based on distributed ledger technology or similar technology, excluding digital currencies issued by central banks."

2.2 Tax Attribute Classification

2.2.1 Convertible Virtual Currencies (such as Bitcoin BTC, Ethereum ETH, etc.)

For convertible virtual currencies like Bitcoin and Ethereum, the core of tax treatment is to distinguish the nature of transactions. If held for long-term investment purposes and not frequently buying and selling cryptocurrencies, the profits from sales are considered capital gains, and since Hong Kong has no capital gains tax, no profits tax is required; if trading is frequent for profit-making purposes, the relevant profits are considered trading profits and are subject to profits tax regulations. In determining this, the core reference standard is the taxpayer's subjective intention at the time of purchasing the cryptocurrency, combined with objective factors such as transaction frequency and transaction scale for comprehensive judgment.

DIPN 39 Article 12 clarifies: "If a taxpayer holds convertible virtual currencies for long-term investment purposes, the profits from their sale are capital gains, which are not subject to capital gains tax in Hong Kong; if the taxpayer trades frequently for profit-making purposes, the relevant profits are deemed to be trading profits and are subject to profits tax under section 14 of the Inland Revenue Ordinance."

Article 13 clarifies: "The subjective intention of purchasing cryptocurrencies is the primary basis for determination, combined with objective factors such as transaction frequency, transaction scale, and whether there is a fixed transaction model."

2.2.2 Stablecoins (such as USDC, USDT, etc.)

Stablecoins are also classified based on the nature of transactions for tax treatment. The transfer of stablecoins held for long-term investment is classified as capital gains, and no profits tax is required; if trading stablecoins frequently for profit-making purposes, the relevant profits are regarded as trading profits and subject to profits tax regulations. Additionally, when stablecoins are used as a payment method, their tax treatment is consistent with traditional currency payments, and the value of stablecoins on the day of receipt must be converted to Hong Kong dollars and included in taxable income for salaries tax.

Article 27 of the "Stablecoin Ordinance" specifies tax responsibilities: "When stablecoins are used as a means of payment, their tax treatment is consistent with salaries paid in traditional currencies. Employers and employees shall, in accordance with section 8 of the Inland Revenue Ordinance, convert the market value of stablecoins on the day of receipt into Hong Kong dollars and include it in the taxable income for salaries tax."

2.2.3 NFTs (Non-Fungible Tokens)

The tax classification of NFTs has not yet been specifically detailed under existing regulations in Hong Kong, but according to the general principles of DIPN 39, the tax treatment of NFTs also requires distinguishing the nature of transactions. If held for long-term investment and sold, the profits are considered capital gains, with no profits tax required; if frequently bought and sold for profit-making reasons, the related profits are regarded as trading profits and taxable. Under the Crypto Asset Reporting Framework (CARF), NFTs are clearly included in the category of crypto assets requiring information reporting.

2.2.4 Staking/Mining Rewards

The tax treatment of digital asset rewards obtained through staking or mining depends on the acquisition scenario. If new cryptocurrencies obtained through airdrops or forks occur in the course of operating crypto-related businesses, they are considered business income and taxed under profits tax regulations; if randomly obtained during personal investment activities without engaging in business activities, no profits tax is required. The Guidance on Virtual Asset Staking Services explicitly requires institutions that conduct staking operations to fully record and retain key information related to staking income for a period not less than 7 years.

DIPN 39 Article 18 states: "If mining/staking activities constitute business operations, the rewards obtained are considered business income and subject to profits tax; if they are personal amateur activities, no tax is payable."

Article 19 of the "Guidance on Virtual Asset Staking Services" clarifies: "Institutions engaged in staking business shall record the time of acquisition, amount, and corresponding taxpayer information of staking proceeds, with a retention period of not less than 7 years."

2.2.5 Digital Assets Held by Funds/Family Investment Control Instruments

According to the "Digital Asset Development Policy Declaration 2.0", the government will submit legislative proposals to incorporate specified digital assets into transactions eligible for profits tax exemption for privately issued funds and family investment control instruments (FOIV). If the proposal is approved by the Legislative Council, the tax exemption will take effect in the 2025/2026 tax year. This means that qualifying privately issued funds and family investment control instruments will enjoy profits tax exemption when conducting transactions related to specified digital assets.

2.3 Boundaries with Other Assets

In terms of tax treatment, there are two clear boundaries regarding the attributes of digital assets: firstly, digital assets are not legal tender; secondly, tax treatment is distinguished by the nature of transactions, with transfers from long-term holdings classified as capital gains (tax exempt) and profits from frequent trading classified as trading profits (taxable).

DIPN 39 Article 7: "Digital assets are not legal tender as defined under the Legal Tender Notes Ordinance of Hong Kong, and their tax treatment does not apply to the special rules for currency transactions; at the same time, the core of tax determination for gains from the transfer of digital assets is to distinguish between capital gains and trading profits, and this principle applies to all types of digital assets."

2.4 Special Classification Considerations

In addition to the classifications mentioned above, there are several special cases that require close attention: tokenized ETFs are explicitly included in the stamp duty exemption scope; specified digital asset transactions held by privately issued funds and family investment control instruments will enjoy profits tax exemptions; and stablecoins are subject to specific regulatory provisions governing their issuance, trading, and services.

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