Hong Kong Digital Asset Tax Regulation and Compliance Analysis Report 2 | Tax Classification

Written by: Xie Yancen

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

【Key Conclusions】Looking back over these years, Hong Kong’s digital asset tax regulation has followed a clear path: first establishing the basic principles of digital asset taxation with DIPN 39 in 2020, then gradually supplementing regulatory documents (for trading platforms, staking services, stablecoins) to support tax administration, followed by legislative implementation of the Crypto Asset Reporting Framework (CARF), and finally offering tax incentives through policy declarations. Overall, the trend is toward increasing standardization and transparency, while aligning more closely with international standards.

Chapter 2: Tax Classification of Digital Assets in Hong Kong

2.1 Legal Definitions

Hong Kong currently lacks a specific statutory definition for digital assets, but various regulatory documents clearly define different types of digital assets.

In “Interpretation and Guidance Note No. 39” (DIPN 39), the term “digital assets” is used to encompass cryptocurrencies and other digital forms of assets.

In the “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 “Crypto Asset Reporting Framework Implementation and Common Reporting Standards Amendment,” crypto assets include virtual currencies (such as Bitcoin, Ethereum), stablecoins, NFTs, and other tradable crypto assets, but exclude Central Bank Digital Currencies (CBDC). The original definition states: “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 Classifications

2.2.1 Convertible Virtual Currencies (e.g., Bitcoin BTC, Ethereum ETH)

For convertible virtual currencies like Bitcoin and Ethereum, the core tax treatment depends on the nature of the transaction. If held for long-term investment with minimal trading, profits from sales are considered capital gains, which are not taxed in Hong Kong due to the absence of capital gains tax. If traded frequently for profit, the profits are deemed trading income and subject to profits tax. The Inland Revenue Department primarily considers the taxpayer’s subjective intention at the time of purchase, combined with objective factors such as trading frequency and scale.

DIPN 39, Article 12, states: “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 traded frequently for profit, the profits are deemed trading profits and are subject to profits tax under section 14 of the Inland Revenue Ordinance.”

Article 13 emphasizes: “The subjective intention at the time of purchasing cryptocurrencies is the primary criterion, combined with objective factors such as trading frequency, scale, and whether there is a fixed trading pattern.”

2.2.2 Stablecoins (e.g., USDC, USDT)

Stablecoins are also classified based on transaction purpose. Long-term holdings and transfers of stablecoins for investment are considered capital gains and are not taxed. Frequent trading for profit makes the profits trading income, subject to profits tax. When used as a payment method, the tax treatment aligns with traditional currency payments: the market value of stablecoins at the time of receipt must be converted into Hong Kong dollars and included as taxable employment income for salaries tax.

The “Stablecoin Ordinance,” Article 27, states: “When stablecoins are used as a means of payment, their tax treatment is consistent with salaries paid in traditional currencies. Employers and employees shall convert the market value of stablecoins on the day of receipt into Hong Kong dollars and include it in taxable income for salaries tax.”

2.2.3 NFTs (Non-Fungible Tokens)

NFTs currently lack specific tax rules in Hong Kong, but according to general principles in DIPN 39, the tax treatment depends on the transaction purpose. Long-term holdings are considered capital assets, with profits from sales not taxed. Frequent trading profits are deemed trading income and taxed accordingly. Under the Crypto Asset Reporting Framework (CARF), NFTs are explicitly included within crypto assets and require reporting.

2.2.4 Staking/Mining Rewards

Digital assets obtained through staking or mining are taxed based on the context. If new cryptocurrencies are received via airdrops or forks during business operations, they are considered business income and taxed accordingly. If obtained incidentally during personal investment without business involvement, no profits tax applies. The Virtual Asset Staking Service Guidelines require institutions engaged in staking to keep detailed records of staking income, retaining these records for no less than 7 years.

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

The “Virtual Asset Staking Service Regulatory Guidelines,” Article 19, mandates: “Institutions engaged in staking must record the time, amount, and taxpayer information of staking proceeds, with a retention period of at least 7 years.”

2.2.5 Digital Assets Held by Funds/Family Investment Control Tools

According to the “Digital Asset Development Policy Declaration 2.0,” the government will propose legislation to include specified digital assets in private offering funds and family investment control tools (FOIV) that qualify for profits tax exemption. If approved, the tax exemption will take effect from the 2025/2026 tax year. This allows qualifying private funds and FOIVs to enjoy profits tax exemption on relevant digital asset transactions.

2.3 Boundaries with Other Assets

In tax treatment, digital assets have two clear boundaries: first, they are not legal tender; second, their tax treatment depends on transaction purpose. Long-term holdings are considered capital gains (tax-exempt), while frequent trading profits are regarded as trading income (taxable).

DIPN 39, Article 7, states: “Digital assets are not defined as legal tender under Hong Kong’s Legal Tender Notes Ordinance, and their tax treatment does not apply to currency transaction rules; the core principle for gains from digital asset transfers is to distinguish between capital gains and trading profits, applicable to all digital asset types.”

2.4 Special Classification Considerations

Beyond the above classifications, several special cases warrant attention: tokenized ETFs are explicitly included in stamp duty exemptions; transactions involving specified digital assets held by private offering funds and FOIVs are eligible for profits tax exemption; and stablecoins are governed by dedicated regulations covering issuance, trading, and services.