Hong Kong commits to global crypto tax reporting, first exchange set for 2028

Hong Kong is officially onboard with the OECD’s Crypto-Asset Reporting Framework, promising to roll out a global crypto tax reporting system by 2028.

On December 13, the government told the OECD’s Global Forum on Transparency and Effective Exchange of Information in Tax Matters that it will adopt the framework to tackle cross-border tax evasion and boost international tax transparency. Legislative changes will begin soon, and the clock is ticking.

The framework, launched in June 2023, is a global reporting mechanism designed to close loopholes in crypto taxation. It forces tax jurisdictions to share data annually on crypto accounts and transactions involving their residents.

Hong Kong’s crypto industry has become “directly relevant” to these efforts, according to the Global Forum. In response, the government will complete necessary legislative amendments by 2026, ensuring it can meet the first reporting deadline.

Legislative overhaul: Clock starts now

The Secretary for Financial Services and the Treasury, Hui Ching-yu, said the framework is critical for Hong Kong’s position as a major international financial hub.

“Implementing the Reporting Framework is vital to maintaining Hong Kong’s reputation as an international financial and business center and reflects Hong Kong’s reputation as a responsible tax jurisdiction,” he said.

The government’s plan is straightforward. Amend laws, prepare the industry, and begin automatic tax reporting. But it’s not just about following orders. Reciprocity is a non-negotiable condition: Hong Kong will only share data with partners that meet strict standards for confidentiality and security.

Local lawmakers will also consult stakeholders and the public during the process. Hong Kong already has experience in this arena. Since 2018, the region has exchanged financial account information annually with tax jurisdictions worldwide. This includes data on foreign bank accounts, which tax authorities use to uncover hidden income.

How the OECD’s crypto tax system will work

The OECD’s Crypto-Asset Reporting Framework applies to crypto-asset service providers, including exchanges, custodial wallets, and intermediaries. These providers will be required to collect detailed information on their users and transactions, including who owns the accounts, balances, and transaction histories.

Once gathered, the data will be sent to tax authorities annually and shared between jurisdictions. Any user with a tax residency in a participating jurisdiction will find their crypto activity reported. In short, there’s no more hiding behind anonymous wallets or offshore platforms.

Hong Kong’s exchanges and crypto firms will face a heavy lift. They’ll need to revamp their systems to track, secure, and share this data without breaking confidentiality rules. For some players, it’ll mean a big compliance bill. Smaller exchanges and wallet providers might struggle to keep up.

The state of Hong Kong’s crypto regulations

The Hong Kong government has spent the last two years remaking its regulatory landscape to support innovation while maintaining tight control. On June 1, 2023, the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) came into force.

It mandates all Virtual Asset Service Providers (VASPs) to comply with anti-money laundering (AML) and counter-terrorism financing (CTF) rules.

Under the current regime, platforms trading security tokens must obtain a license from the Securities and Futures Commission (SFC), while platforms handling non-security tokens like Bitcoin fall under AMLO’s licensing requirements. Both regimes demand strict compliance, with no exceptions.

Hong Kong is also pushing forward with stablecoin regulations. In July 2024, the Financial Services and Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) released a consultation paper outlining a licensing framework for stablecoin issuers.

This covers everything from governance to risk management and reserves. Only stablecoins issued by licensed entities will be available to retail investors. To prepare for the incoming regulations, the HKMA launched a sandbox program in March for stablecoin issuers.

Meanwhile, licensing for VASPs remains competitive. As of press time, only OS Digital Securities Limited and Hash Blockchain Limited had secured full licenses. Fourteen other applicants are still in limbo. Interest is growing, but the bar remains high.

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