Updated: Nov 17, 2022
Important Things You Need to Know About Operating a Cryptocurrency Exchange
Many U.S. or European cryptocurrency exchanges have considered expanding into Hong Kong in recent months. Given the dynamism of Hong Kong's crypto ecosystem, this trend is likely to continue.
Cryptocurrency Exchanges Are Not Regulated
If a crypto exchange only offers digital assets that are not securities (e.g. cryptocurrencies, utility tokens), it can operate as a completely unregulated business.
The framework is a choice for regulation. If a cryptocurrency exchange only offers digital assets that are not securities (eg cryptocurrencies, utility tokens), it can continue to operate as a completely unregulated business.
Cryptocurrency exchanges that decide not to get regulated and only offer non-securities digital assets can serve individual and corporate investors.
Hong Kong Company Incorporation
The entire company registration process usually takes less than a week.
Directors can be individuals or companies of any nationality or domicile. But at least one director should be a normal person. A corporate director is not allowed to be a company director of a private company if it is a member of a group of companies of which a listed company is a member.
Every company must have a registered office in Hong Kong (cannot be a PO Box number or a "care of" address, but can be different from its business address).
Often, service providers that help register and set up companies also provide registered office services. A registered office can also be a co-working space.
Employment requires appropriate work rights status (eg employment visa). An employment visa can be linked to a newly established company.
Pension and Insurance Requirements
Every employer is required to join the Mandatory Provident Fund scheme and register employees (except exempt persons) in the scheme.
Every employer must purchase workers' compensation insurance (sum insured not less than HK$100 million per event (if the company has 200 or fewer employees) to cover liability for work-related injuries.
Annual Filing Requirements
• Filing an annual return with the Companies Registry
• Holding the Annual General Meeting of Shareholders
• Preparation of audited financial statements
• Business registration certificate renewal
• Filing the employer's return with the Inland Revenue Department (“IRD”)
• Submission of profit tax returns to the Inland Revenue Department
Applicable Tax Rate (Business + Personal)
The usual corporate income tax rate for a company is 16.5% of its assessable profits. The first HK$2 million of assessable profit is only taxed at 8.25%.
Individuals are taxed at a progressive rate of 2% to 17% on their net chargeable income (i.e. assessable income after deductions and allowances) or 15% of net income (i.e. income after deductions only), whichever is lower.
Capital gains are not taxed in Hong Kong.
There is no VAT, GST or any other similar sales tax in Hong Kong.
Tax Guidance for Crypto Assets
The Inland Revenue Department of Hong Kong issued new cryptocurrency tax guidelines (revised DIPN 39) in March 2020, in which the Inland Revenue Department (IRD) of Hong Kong recognizes 3 types of digital tokens (payment, securities and utility tokens), and profits tax treatment depends on its nature and use.
Classification of Crypto Payment Tokens (such as Bitcoin)
If the digital asset is purchased for long-term investment purposes, any profit from the sale will not be subject to capital gains tax. Employees can receive wages in cryptocurrency. The amount reported as the employee's employment income should be the market value of the cryptocurrency accrued.
Crypto Lending are Taxable
There are no specific exemptions for crypto-lending. General tax principles apply.
Bestar is a network of firms in 3 countries with more than 50 professionals who are committed to delivering quality in assurance, advisory and tax services. We offer a “one stop shop” solution for our crypto clients across our multiple lines of service.