Authored by: Xie Yancen

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

【Core Conclusion】Reviewing the development over the past few years, Hong Kong’s regulatory framework for digital asset taxation has followed a clear pathway: first, the fundamental principles of digital asset taxation were established in 2020 through DIPN 39; gradually, various regulatory documents (for trading platforms, staking services, stablecoins) were supplemented to support tax administration; then, the legislative process was implemented to establish a crypto asset reporting framework (CARF); finally, tax incentives were provided through policy declarations. Overall, the trend in regulation is becoming more standardized, more transparent, and increasingly aligned with international standards.

Chapter Seven: Comparison of Digital Asset Taxation Management between Hong Kong and the United States

After reviewing the digital asset taxation regulatory frameworks of Hong Kong and the United States, this chapter will provide a comprehensive comparative analysis of the tax management of digital assets in both regions, clearly presenting the core similarities and differences to provide reference for cross-border arrangements and compliance planning for digital asset investors and market entities.

7.1 Comparison of Tax Principles

7.1.1 Taxation Principles

Hong Kong: Strictly follows the territorial taxation principle, levying profits tax only on profits from digital asset transactions generated in or derived from Hong Kong. There is no need to report or pay taxes to the Hong Kong Inland Revenue Department on profits from digital asset transactions generated outside of Hong Kong; tax administration focuses on local taxable activities.

United States: Implementing a global income taxation principle, broadly covering U.S. citizens, green card holders, and U.S. tax residents meeting substantial presence tests, who must report and pay tax on related income from digital asset transactions regardless of where the transactions occur globally, with no geographical exemptions.

7.1.2 Capital Gains Tax

Hong Kong: No capital gains tax, significant core advantage. Profits from the transfer of digital assets (such as Bitcoin, Ethereum, etc.) held for the long term are categorized as capital appreciation and are exempt from profits tax; only when transactions are deemed frequent and organized business activities will profits tax be assessed based on business profits.

United States: Has a comprehensive capital gains tax system that distinguishes tax rates based on holding periods. Assets held for less than a year will have transfer profits classified as short-term capital gains subject to ordinary income tax rates (up to 37%); those held for one year or longer are subject to long-term capital gains tax rates (0%, 15%, 20%), with collectibles (such as certain NFTs) subject to a maximum tax rate of 28%.

7.1.3 Gift and Inheritance Tax

Hong Kong: Comprehensive abolition of gift and inheritance taxes since 2006; the act of gifting or inheriting digital assets itself carries no tax obligation, focusing only on the nature of transactions in subsequent disposal stages, greatly reducing the tax cost of wealth transmission for digital assets.

United States: Retains gift and inheritance taxes, applying a unified exemption amount system. The lifetime unified exemption for gifts and estates in 2026 is $15 million; any amount exceeding this exemption is taxed at a maximum rate of 40%; digital assets, as a type of property, must be included in the exemption calculation when gifted or inherited, resulting in high complexity in tax planning.

7.2 Tax Treatment Comparison

7.2.1 Qualitative Assessment of Digital Assets

Hong Kong: Uses the transaction nature distinction principle, offering higher flexibility. Digital assets held for long-term investment are deemed capital assets and profits from transfers are tax-exempt; frequent trading and arbitrage-focused digital assets are regarded as trading inventory, and profits from transfers are taxed based on business profits, with a core focus combining transaction frequency, holding purpose, and other comprehensive assessments.

United States: Implements a uniform property characterization principle, leaving no space for distinction. Regardless of transaction frequency or holding purpose, digital assets are uniformly treated as "property," with sales and exchanges requiring capital gains or losses calculations; only certain business scenarios (like professional mining) are considered operating income taxable at ordinary rates.

7.2.2 Common Transaction Scenarios Tax Treatment

7.2.3 Cost Basis Accounting

Hong Kong: No specific statutory accounting methods, allowing for higher flexibility. Taxpayers are generally permitted to choose a reasonable accounting method (e.g., FIFO, weighted average, etc.), with the core requirement being that the accounting method is consistent, traceable, and can accurately support tax reporting data.

United States: Accounting rules are strict and clear. Starting January 1, 2025, mixed cost basis accounting across wallets and addresses is prohibited; individual wallets/addresses must be accounted for separately; methods such as FIFO, LIFO, and HIFO can be chosen, but consistency must be maintained once chosen, and any changes must be approved by the IRS.

7.3 Comparison of Regulatory Frameworks

7.3.1 Regulatory Document System

Hong Kong: Constructs a triadic regulatory system of "guidelines + policies + legislation," focusing on compliance and development

Tax Guidelines: "Interpretation and Implementation Guidelines for Tax Ordinance No. 39" (DIPN 39, 2020), clarifying the core principles of digital asset tax treatment;

Regulatory Guidelines: Guidelines for Virtual Asset Trading Platforms (2023), Guidelines for Virtual Asset Staking Services (2025), standardizing licensed institution operations;

Legislation and Policies: "Stablecoin Ordinance" (2025), Digital Asset Development Policy Declaration 2.0 (2025), Draft Revised Tax Ordinance (2026), improving system safeguards.

United States: Centered on "notices + rulings + legislation," focusing more on tax compliance and risk management

Tax Notices: Notice 2014-21, Notice 23-34, etc., clearly outlining the tax treatment criteria for various digital asset transactions;

Tax Rulings: Revenue Ruling 2019-24, Revenue Ruling 2023-14, etc., clarifying specific scenario tax determination standards;

Legislation and Guidelines: "Infrastructure Investment and Jobs Act" (IIJA, 2021), 2022 IRS Taxpayer Guide, defining regulatory bottom lines;

Reporting Forms: Form 1099-DA, standardizing the information reporting of digital asset trading.

7.3.2 Information Reporting Requirements

Hong Kong: Adopts a "step-by-step advancement" model, balancing compliance with market adaptability

Crypto Asset Reporting Framework (CARF): Planned to start information collection in 2027, with implementation of automatic information exchange with cooperating jurisdictions in 2028;

Common Reporting Standard (CRS) Revision: Planned for implementation in 2029, officially including crypto assets in the reporting scope;

Record-keeping for Licensed Institutions: According to Section 51C of the Tax Ordinance and special guideline requirements, retaining relevant records for not less than 7 years to ensure traceability.

United States: Implements a "mandatory reporting + strict regulation" model, with high demands for information transparency

Form 1099-DA: For 2025 transactions (filed in 2026), brokers must report total trading revenues; for 2026 transactions (filed in 2027), additional reporting of cost basis and holding periods is required;

FBAR (Foreign Bank Account Report): Foreign financial accounts (including digital asset accounts) with a total value exceeding $10,000 at any given time must be reported;

Form 8938: Certain foreign financial assets (including digital assets) reaching reporting thresholds must be actively reported;

7.4 Comparison of International Cooperation (Cross-Border Information Exchange)

Hong Kong: Leveraging its position as an international financial center, gradually improving the cross-border information exchange system

Implementing the OECD Crypto Asset Reporting Framework (CARF), planning to conduct automatic exchanges of digital asset information with cooperating jurisdictions by 2028;

Advancing CRS revision, with the aim of including crypto assets in cross-border information exchanges starting in 2029 to enhance tax transparency;

Has signed comprehensive double taxation avoidance agreements with over 40 countries/regions, mitigating the risks of double taxation on cross-border digital asset transactions.

United States: Early and broad development of cross-border regulatory cooperation, centered on unilateral regulation + multilateral collaboration

Commits to implementing the OECD Crypto Asset Reporting Framework (CARF), planning to conduct automatic information exchanges with qualifying jurisdictions by 2029;

Has not implemented CRS (Common Reporting Standards), only conducting financial asset information exchanges with certain countries/regions through bilateral tax treaties, not participating in CRS multilateral automatic exchanges;

Through the Foreign Account Tax Compliance Act (FATCA), mandates foreign financial institutions to report account information of U.S. tax residents to the IRS, strengthening cross-border tax regulation;

Has signed tax treaties with several countries/regions to standardize the tax distribution for cross-border digital asset transactions.

7.5 Comparison of Tax Incentives

7.5.1 Incentive Policies

Hong Kong: Focused on "attracting capital, promoting innovation," with targeted incentive policies

Tokenized ETF stamp duty exemption, reducing trading costs for digital asset investment products;

Designated digital asset transactions by privately offered funds and family investment control tools (FOIV) enjoy profits tax exemption (pending legislative approval in 2026), attracting institutional investors.

United States: Incentive policies focus on "charitable donations, short-term exemptions," with a narrower scope

The wash sale rule is temporarily not applicable to digital assets, with an exemption period until December 31, 2025, allowing investors to buy and sell the same digital asset within a short period to offset losses;

Donating long-held digital assets to qualified charities allows for tax deductions based on fair market value, without capital gains tax on appreciation, encouraging charitable donations.

7.6 Core Advantages of Hong Kong for Digital Asset Investors

Comprehensively comparing the digital asset tax management between Hong Kong and the United States, combined with Hong Kong’s tax system features and regulatory environment, the core advantages of Hong Kong for digital asset investors (both individuals and institutions) can be summarized into five major points, highlighting its unique value as a global compliance hub for digital asset investment:

Significant low tax burden, maximizing investment returns: Hong Kong has no capital gains tax, with full exemptions on profits from transfers of long-term held digital assets compared to the maximum 20% (28% for collectibles) capital gains tax in the United States, significantly enhancing the actual returns for investors; at the same time, with no gift taxes or inheritance taxes, transmission of digital asset wealth incurs no additional tax costs, significantly better than the high exemption + high tax rate model in the United States.

Flexible tax treatment, adaptable to diverse investment scenarios: Hong Kong distinguishes the tax treatment of digital assets based on the nature of transactions, supporting both long-term value investing (tax-exempt) and regulating short-term business transactions (taxable), adapting to the needs of different entities such as individual investors, institutional investors, and professional traders; whereas the United States uniformly classifies them as property, leading to rigid tax treatments that are difficult to adapt to diverse investment scenarios.

Controlled compliance costs, lower thresholds for adaptation: Hong Kong adopts a step-by-step approach for information reporting, with no mandatory reporting requirements before 2027, providing sufficient time for investors to adapt to compliance; cost basis accounting is flexible, not requiring strict accounting on a per-wallet basis, resulting in lower operational difficulty. Compared to the mandatory reporting from Form 1099-DA and strict accounting rules already implemented in the United States in 2025, compliance costs are lower and adaptation thresholds are lower for Hong Kong investors.

Targeted incentive policies, attracting long-term capital: Hong Kong has launched specific policies such as stamp duty exemptions for tokenized ETFs and profits tax exemptions for FOIV digital asset transactions (pending legislation), precisely reducing transaction and tax costs for institutional investors, attracting private funds and family offices to establish long-term capital, and creating a favorable investment ecosystem for investors.

Cross-border layout is friendly, with high tax certainty: Hong Kong implements the principle of territorial taxation, so that profits from digital asset transactions outside of Hong Kong do not need to be reported or taxed, making it suitable for cross-border investors; at the same time, gradually improving the cross-border information exchange system, signing double taxation avoidance agreements with multiple countries/regions, mitigating the risks of double taxation on cross-border transactions, leading to higher tax certainty and greater planning flexibility for cross-border investors compared to the United States' global taxation + bilateral information exchange model.

In summary, Hong Kong has become a favored destination for global digital asset investors, especially individuals and institutions pursuing long-term value investing, focusing on asset transmission, and requiring cross-border arrangements due to its core advantages of "low tax burden, high flexibility, strong incentives, and low compliance costs," which ensure compliance safety while maximizing investment returns.

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