From decrypt by Sebastian Sinclair

Hong Kong is preparing to exempt investment gains from crypto and other assets for sophisticated investors, aiming to enhance the region’s appeal as a wealth management hub.

A consultation paper from the Financial Services and the Treasury Bureau proposes expanding capital gains tax exemptions to include overseas properties, carbon credits, private credit, and crypto, Reuters reported Thursday. 

Those exemptions would apply to privately offered funds and eligible single-family office investment vehicles. Thursday’s proposal adds further clarity to Hong Kong’s crypto plans.

Still, it is not yet clear when the policy will come into effect should the proposal progress. Hong Kong's central bank did not immediately return a request for comment.

It also proposes extending tax exemptions to pension and endowment funds, broadening the scope of assets eligible under the city's fund and family office regimes, per the report.

Hong Kong already offers tax incentives for select private funds and family offices, such as a profits tax exemption, but the new proposal seeks to extend these advantages to crypto-related investments, aiming to foster innovation in blockchain technology and finance.

It comes amid a surge in institutional interest for the asset class this year, which kicked into gear with the approval of multiple spot Bitcoin exchange-traded funds in the U.S. in January.

The Special Administrative Region of China is attempting to capture some of that enthusiasm by making it more attractive for those with deep pockets to invest domestically.

Last month, Christopher Hui, Hong Kong’s Secretary for Financial Services and the Treasury, said the city wants to ensure it has the “right conducive environment for blockchain, in particular their financial applications.”

“We are being asked all the time … what are the incentives … from the government in terms of growing this sector,” Hui said during a keynote speech at Hong Kong's FinTech Week.

The proposed policy also builds on efforts to foster the development of digital assets in the region.

Last year, the government implemented a licensing framework for virtual asset trading platforms under the Securities and Futures Commission. The Virtual Asset Trading Platform regime requires platforms to comply with stringent investor protection and compliance standards.

The city’s regulatory focus also extends to stablecoins. By the end of 2024, a new framework will require stablecoin issuers to establish a physical presence in Hong Kong, hold reserves in local banks, and adhere to restrictions on offering interest payments.