Written by: FinTax

I. Introduction

On February 13, Esperanza Securities received permission from the Hong Kong Securities and Futures Commission to engage in entertainment asset tokenization (tokenization) for the box office revenue rights of Huang Kaiqian's 40th Anniversary Concert. On February 24, the RWA project under Deline Holdings' Central Deline Tower was approved for issuance. At the start of 2026, premium commercial real estate in Hong Kong's Central business district, along with concert tickets and revenue rights from the "Red Hall," hailed as the benchmark of Asian pop culture, were successively "on the chain" in the short term, becoming some of the first RWA projects initiated in Hong Kong in their respective fields. This phenomenon marks the transition of RWA (Real World Assets) from the proof of concept (PoC) phase to a new stage of commercialization and scaling.

Hong Kong is emerging as an important hub for the gathering of global RWA assets, leveraging its unique "one country, two systems" advantage, a well-established common law system, and a forward-looking regulatory framework. Compared to traditional credit and IPOs, issuing RWA in Hong Kong is not only a strategic choice to widen financing channels and reduce financing costs, but also an important path to achieve global price discovery and liquidity release for assets. However, behind financial innovation often lurks complex legal and tax compliance risks. RWA is not merely "new wine in old bottles." It demands that issuers establish a sound compliance system across multiple dimensions, including underlying asset penetration, smart contract auditing, cross-border data compliance, and anti-money laundering (AML). This article will provide a professional perspective to systematically outline the evolution of RWA in Hong Kong, analyze its tax implications and regulatory logic, and examine the compliance risks behind the financing dividends of RWA.

II. From Standardized Assets to Real Estate and Entertainment: The Evolution of RWA in Hong Kong

Looking back at the development history of RWA in Hong Kong, a clear trend of evolution from standardized financial products to broader real assets can be seen. This reflects not only the deepening integration of blockchain technology and financial engineering but also the wisdom of Hong Kong regulators in seeking progress amid stability.

Phase One: Standardized Asset Testing Under Credit Endorsement (2022-2023)

The initiation of RWA in Hong Kong was not driven by grassroots initiatives but rather propelled from the top down by the government. In February 2023, the Hong Kong SAR government successfully issued HK$800 million in tokenized green bonds (Project Evergreen), making it one of the world's first tokenized green bonds issued by a government (HKMA, 2023). This phase is characterized by highly standardized underlying assets (bonds), high credit ratings (sovereign credit), and limited participation (institutional investors only). The core objective is to test the cost-reducing and efficiency-enhancing capabilities of distributed ledger technology (DLT) in traditional financial infrastructure (such as clearing and settlement).

Phase Two: Tokenization of Private Credit and Fund Shares (Late 2023)

With the preliminary validation of infrastructure, the Hong Kong Securities and Futures Commission (SFC) successively issued multiple circulars regarding intermediaries engaging in tokenized securities activities and the tokenization of SFC-approved investment products (SFC, 2023a; SFC, 2023b). The market began to shift focus towards private credit and money market funds (such as tokenized U.S. Treasury bonds). In this phase, RWA served as a bridge connecting Web3 funds with traditional dollar-denominated income-generating assets, opening up channels for risk-free returns on-chain.

Phase Three: Value Reconfiguration of Non-Standard Assets (Real Estate, Entertainment IP) (2026)

In early 2026, the first batch of real estate and entertainment RWA projects was approved by the Hong Kong SFC, further expanding the application scenarios of RWA in Hong Kong. Commercial real estate inherently has high capital thresholds and low liquidity. Through fractionalization via RWA, professional investors can participate in investments and dividends at comparatively lower thresholds. Meanwhile, entertainment assets such as concert and film rights often exhibit significant cyclicality and uncertainty in cash flow. Tokenizing box office revenue rights can integrate consumer behavior with investment behavior. Fans become both consumers and ecosystem investors. This dual attribute of "finance + consumption" greatly broadens the pre-financing channels of the entertainment industry.

In summary, the core commercial value of RWA has surpassed mere optimization of payment and settlement efficiency, moving more towards the release of liquidity premiums. Assets that exhibit poor liquidity and difficulty in divisibility within traditional financial systems often have more significant value appreciation potential under the RWA framework.

III. How Do Real Assets Get "On-Chain"? Dissecting the Full RWA Process

(I) Case Analysis: Taking Central Deline Tower RWA as an Example

In February 2026, Deline Holdings (1709.HK) disclosed that its plan to tokenize the equity of its limited partnership fund (i.e., "Deline Tower LPF") holding commercial properties in Hong Kong has gained regulatory approval from the Hong Kong Securities and Futures Commission with "no further comments," allowing licensed institutions to distribute it to qualified professional investors (PI). As a model for the integration of traditional commercial real estate and digital finance, such projects generally involve the following steps:

1. Asset Separation and SPV Establishment: The issuer must first establish a special purpose vehicle (SPV) in Hong Kong or offshore to legally transfer the property rights or revenue rights of the commercial property to the SPV. The core aim of this step is to isolate the credit risk of the assets from the credit risk of the developer's parent company.

2. Third-Party Due Diligence and Valuation: Engage professional institutions to conduct financial and legal due diligence on the SPV and its underlying property, and have independent valuers issue property valuation reports to ensure the token pricing is based on fair grounds.

3. Oracle Mechanism Design: The value and rental revenue of commercial real estate occur off-chain. Projects need to introduce trusted "oracles" to periodically synchronize real-world rental flows, latest valuations, and other data onto the blockchain, ensuring token holders receive real information.

4. Smart Contract Development and Auditing: Encode the distribution logic of the asset (e.g., quarterly distribution of rent), transfer restrictions (e.g., limited to compliant PI transactions in Hong Kong) into the smart contract. Before deployment, legal security audits must be conducted.

5. Token Minting and Issuance: Mint security tokens representing SPV equity or debt on Ethereum or other public chains/alliance chains, with each token representing a specific proportion of economic returns and voting rights in the fund.

6. Licensed Institutions Distribution and Secondary Trading: Using Hong Kong's Type 1 (Securities Trading) and Type 4 (Advising on Securities) licenses, financial institutions approved by the SFC to engage in virtual asset businesses can underwrite and distribute the tokens, with future secondary market circulation occurring in compliant VATPs.

(II) Introduction to Mainstream Paths of Hong Kong RWA

Based on the nature and legal structure of underlying assets, Hong Kong RWA is currently mainly divided into three major paths. Different paths have varying compliance and tax implications.

(III) Corresponding Regulatory Requirements

The regulatory logic of the Hong Kong Securities and Futures Commission (SFC) regarding RWA can be summarized in twelve words: "Same business, same risk, same rules." This means that the regulatory authority will not lower its guard simply because the assets are dressed in the "cloak" of blockchain but will adopt penetrative regulation, directly targeting the economic substance of underlying assets.

First, at the level of asset qualification, according to the circular issued by the SFC in November 2023 regarding tokenized SFC-approved investment products, if the underlying assets of RWA belong to traditional stocks, bonds, or fund shares, the corresponding tokens will be classified as "tokenized securities." Issuance of such products is generally subject to the issuance, disclosure, and licensing requirements applicable to traditional securities under the Hong Kong Securities and Futures Ordinance.

Second, for non-standard assets, if their tokenization structure embeds complex derivative logic or special transfer restrictions, the SFC tends to regard them as "complex products." This requires distribution institutions (brokerages/banks) to perform corresponding suitability assessments when recommending to clients, limiting subscriptions to professional investors, such as individuals with over HK$8 million in liquid assets.

On the technical and operational compliance front, regulators usually require issuers to undergo independent third-party audits of smart contracts to preempt asset risks stemming from code vulnerabilities or hacker attacks at the technical source. Additionally, in terms of anti-money laundering, issuers and virtual asset trading platforms must fully implement KYC procedures and strictly comply with travel rules to ensure the transparency and traceability of the sender and receiver identities in each on-chain transaction.

(IV) Relevant Tax Implications

Path One (Asset-Backed Token):

This path mainly involves profits tax. If the issuer directly sells tokens representing local physical assets in Hong Kong (such as machinery), this act can be regarded as sales occurring in Hong Kong. According to the Hong Kong Tax Ordinance, the profits generated must be subject to profits tax, generally applying a standard tax rate of 15% or 16.5% depending on the type of entity.

Path Two (Fund-Linked Token):

In terms of funds and tokens, the tax treatment is more complex. According to the Hong Kong Stamp Duty Ordinance, for the transfer of shares in a non-listed SPV (or Hong Kong securities), each party to the transaction must pay 0.1% of stamp duty on the market value (Stamp Duty Ordinance Chapter 117). When fund shares circulate in token form, on-chain transfers of the tokens may constitute "transfer of Hong Kong securities" in legal terms, thus incurring the 0.1% stamp duty. Moreover, if the relevant fund meets the conditions of the "Unified Fund Exemption Scheme" (UFE), profits obtained from qualifying transactions may be exempt from profits tax, achieving tax optimization.

Path Three (Debt-Based Token):

This path's tax treatment involves the qualification of interest income at the investor level. Taking entertainment RWA projects as an example, dividends derived from holding concert revenue rights tokens are generally classified as interest income for tax purposes. If the investor is a local institution in Hong Kong, an assessment must be made regarding whether the interest is sourced from Hong Kong to determine if it falls within the scope of profits tax; if the investor is an individual, personal interest income tax is generally not levied under the current tax system in Hong Kong.

IV. Behind the RWA Wave: Policy Focus and Compliance Insights

(I) Policy Focus

RWA does not exist in a vacuum; its prosperity is inseparable from the macro policies that support it. To understand the current enthusiasm for issuing RWA in Hong Kong, one must contextualize it within the backdrop of regulatory contrasts between the mainland and Hong Kong, as well as the global financial infrastructure upgrades.

1. Mainland: Strictly Prohibited Domestically, Strictly Regulated Abroad

China's mainland has maintained a clear line in regulating the issuance, trading, and financing activities of virtual currencies. The policy focus lies in empowering the technology industry and promoting the digital RMB (CBDC). The notification issued on February 6, 2026, regarding further prevention and handling of risks related to virtual currencies has clarified the regulatory principles for RWA: the conduct of real-world asset tokenization activities domestically, as well as the provision of related intermediary and information technology services, is considered illegal financial activities, such as illegal token issuance, unauthorized public securities offerings, illegal securities and futures business, and illegal fundraising, and thus should be prohibited; relevant activities conducted with the lawful consent of the competent business authority based on specific financial infrastructure are exceptions. Subsequently, the Securities and Futures Commission issued regulatory guidelines regarding the offshore issuance of asset-backed securities tokens from mainland assets, establishing a dedicated regulatory framework for token issuance of mainland assets in securities form abroad (SFC Announcement [2026] No. 1). This arrangement reflects the regulators' policy thought of "strict prohibition domestically, strict regulation abroad," prohibiting RWA activities on the mainland while leaving space for compliant outflows of mainland assets.

2. Hong Kong: A Regulatory Testing Ground for Financial Innovation

Since the issuance of the "Policy Declaration on the Development of Virtual Assets in Hong Kong" in 2022, Hong Kong has constructed a relatively clear and friendly RWA policy environment globally. In November 2023, the Hong Kong SFC released circulars regarding intermediaries engaging in tokenized securities-related activities and tokenized SFC-approved investment products, establishing a regulatory tone for RWA in Hong Kong. In 2024, the Hong Kong Monetary Authority (HKMA) launched the Ensemble sandbox project, focusing on the application testing of tokenized currencies in inter-institutional RWA settlement scenarios, promoting the construction of financial infrastructure connectivity between Hong Kong's tokenized currencies and assets. In August 2025, the "Stablecoin Ordinance" was officially implemented, establishing a dedicated licensing system for issuers of stablecoins pegged to fiat currencies, providing a compliant pricing anchor and payment tool for RWA transactions, which is conducive to further eliminating intermediary obstacles to real asset tokenization.

(II) Compliance Insights for RWA Issuers

In light of the financing opportunities presented by RWA, project parties issuing RWA in Hong Kong must not stop at narrative enthusiasm but must also simultaneously build a comprehensive compliance framework.

General compliance aspects: First, the authenticity and independence of the asset structure. In the design of entertainment revenue rights or real estate RWA, if the issuer promises fixed returns in the name of tokens but fails to achieve real asset segregation at the underlying level, it may be deemed as illegal fundraising or an unauthorized collective investment scheme under the Hong Kong regulatory framework. Therefore, independent third-party asset custodians may be introduced to mitigate the risks of illegal fund pool operations and rigid repayment. Second, there is a hard constraint for on-chain anti-money laundering. To meet anti-money laundering requirements, executable customer due diligence, wallet address screening, transaction monitoring, and abnormal activity identification mechanisms must be established.

Tax compliance aspects: First, the token attributes affect tax classification and require reasonable tax planning. The Hong Kong Inland Revenue Department may penetrate the technical shell of smart contract transactions during their review and directly examine their economic substance. Whether classified as "property," "equity," or "distribution rights (debt)," this will affect tax classification and the applicability of favorable policies. Second, there are reporting obligations under the cross-border tax information exchange mechanism. Under the Hong Kong CRS (Common Reporting Standard) and CARF (Crypto Asset Reporting Framework), qualifying financial institutions/crypto asset service providers must fulfill their customer due diligence and information reporting obligations. Third, compliance relief for cross-border withholding taxation. When cash flows from mainland entertainment assets or real estate projects are repatriated to Hong Kong SPVs, cross-border withholding taxes are a critical factor affecting investor returns. Given this, project parties should proactively evaluate the applicability of favorable tax rates under the "Arrangement between the Mainland and the Hong Kong Special Administrative Region for Avoiding Double Taxation and Preventing Tax Evasion" — for instance, striving to reduce withholding tax on dividends from 10% to 5%, or on royalties from 10% to 7%. However, the precondition for applying favorable tax rates is that the Hong Kong SPV needs to plan in advance to obtain proof of Hong Kong resident enterprise status (CoR) and meet the stringent substantive identification standards for "beneficial owners" set by mainland tax authorities.

V. Conclusion

For mainland enterprises holding quality underlying assets, issuing RWA in Hong Kong provides a new path to expand financing channels and access global liquidity. However, the real key lies not in whether real assets "can go on-chain," but in whether a robust implementation framework can be established among legal, tax, and business arrangements. Hong Kong has built a supporting infrastructure and regulatory environment; in this burgeoning wave of RWA, the true winners will be those who can navigate the complexities of compliance challenges.

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