Hong Kong has established a comprehensive licensing regime for Virtual Asset Service Providers (VASPs) under the Securities and Futures Commission (SFC). The regulatory framework came into full effect in 2023, requiring all crypto exchanges to obtain licenses. Hong Kong is positioning itself as a major crypto hub in Asia, competing with Singapore. The framework includes retail trading approval, stablecoin regulations, and tokenization initiatives. Hong Kong and Singapore are building a regulated token corridor for cross-border stablecoin transactions. The regulatory approach balances innovation with robust investor protection and AML compliance.

Regulatory Authority: Securities and Futures Commission (SFC). Licensing: Mandatory VASP licensing for exchanges (2023). Retail Trading: Approved for licensed platforms. Stablecoins: Regulatory framework operational; HKD stablecoins supported. Tokenization: Active initiatives for asset tokenization. Cross-Border: Token corridor with Singapore under development. Taxation: No capital gains tax for individuals. AML/CFT: Comprehensive requirements. Consumer Protection: Strong investor safeguards. Positioning: Major Asian crypto hub strategy.

MANDATORY VASP LICENSING (Since June 2023)

Securities and Futures Commission (SFC) Licensing

• All Virtual Asset Trading Platforms (VATPs) must be licensed
• Mandatory regime effective June 1, 2023
• Application process: Submit via SFC, detailed documentation required
• Swift licensing process implemented December 2024 for new applicants
• As of June 2025: 11 VATPs licensed

Who Needs Licensing

• Virtual Asset Trading Platforms (centralized exchanges)
• Virtual Asset Portfolio Managers (fund managers)
• Virtual Asset Fund Distributors
• OTC Trading Services (legislative timeline: end 2025)
• Custodian Services (legislative timeline: end 2025)

A-S-P-I-Re REGULATORY ROADMAP

Access: Streamlined market entry for compliant VASPs Standards: Aligned with IOSCO and FSB international standards Products: Token listings, derivatives for professional investors Infrastructure: Bridge TradFi reliability with blockchain efficiency Relationships: Cross-agency collaboration, industry engagement

LICENSING REQUIREMENTS

Governance: Robust corporate governance, fit and proper persons AML/CFT: Comprehensive anti-money laundering protocols, suspicious transaction reporting Cybersecurity: Strong security measures, incident response plans, penetration testing Asset Segregation: Client assets separated from company assets, cold wallet storage Capital Adequacy: Minimum paid-up capital HK$5 million, liquid capital requirements Investor Protection: Enhanced disclosure, risk warnings, suitability assessments Operational Standards: Surveillance systems, record keeping, regular reporting

APPLICATION PROCESS

1. Pre-application consultation with SFC (recommended)
2. Submit comprehensive application package
3. SFC review and assessment (3-6 months typical)
4. Conditional approval with requirements
5. Final approval and license issuance
6. Ongoing supervision and compliance

Required Documentation: Business plan, organizational structure, AML/KYC procedures, cybersecurity framework, financial projections, insurance coverage, disaster recovery plans, compliance manuals

COSTS

Application Fee: HK$370,000 (approximately US$47,000) Annual License Fee: HK$370,000-$580,000 depending on business size Legal/Compliance Setup: HK$2-5 million (US$250,000-$640,000) Ongoing Compliance: Significant annual costs for staff, systems, audits

SUPERVISION

• Regular inspections and compliance reviews
• Thematic reviews of industry practices
• Enforcement actions for non-compliance
• Collaboration with HKMA, Police, Customs
• Cross-border cooperation with international regulators

RECENT DEVELOPMENTS (2024-2025)

• Order book ring-fencing requirements relaxed (November 2025)
• Improved liquidity access for VATPs
• Stablecoins Bill: Comprehensive framework for issuance and activities
• Crypto dealing and custody regimes being finalized
• Government actively promoting Hong Kong as global crypto hub

NO CAPITAL GAINS TAX

Hong Kong has NO capital gains tax. Profits from buying/selling crypto as investment are tax-free. Only business trading profits are taxable.

PROFITS TAX (Business Income Only)

Corporate Rate: 16.5% on Hong Kong-sourced profits (lower than Singapore 17%, US 21%) Individual Rate: 2-17% progressive (significantly lower than most jurisdictions) Territorial System: Only Hong Kong-sourced profits taxed, offshore profits tax-free

WHAT IS TAXABLE

Trading Income: Frequent buying/selling as business (16.5% corporate, 2-17% individual) Mining Income: Mining conducted as business activity Advisory Fees: Crypto consulting/advisory services Employment Income: Crypto received as salary/wages (salaries tax 2-17%)

WHAT IS NOT TAXABLE

Investment Gains: Long-term holding, occasional sales Capital Appreciation: Personal investment portfolio gains Offshore Profits: Crypto trading sourced outside Hong Kong

IRD DIPN NO. 39 (March 2020)

Comprehensive guidance on digital assets taxation covering: nature of digital assets, classification of tokens, security tokens, ICOs, investment holdings, business activities, business transactions, employment income.

SOURCE OF PROFITS DETERMINATION

Operations Test: Where trading decisions made, contracts negotiated, transactions executed. Offshore operations may be tax-free even for HK residents.

RECENT TAX EXEMPTIONS (2024-2025)

Hedge Funds: Tax exemption on crypto gains proposed Private Equity Funds: Exemption for crypto investments Family Offices: Tax breaks for sophisticated investors Purpose: Position Hong Kong as global crypto wealth management hub

RECORD KEEPING

Must maintain: All crypto transaction records, dates, amounts, counterparties, cost basis for business activities, employment income documentation.

SALARIES TAX

Crypto as employment compensation: Taxable at market rate on receipt date, standard salaries tax rates 2-17%.

KEY ADVANTAGES

• Zero capital gains tax (unique advantage)
• Low business tax rates (16.5% corporate)
• Territorial taxation (offshore profits exempt)
• Clear regulatory guidance since 2020
• Government actively supporting crypto industry

DIGITAL BANKS (Most Crypto-Friendly)

ZA Bank - Asia's First Bank with In-App Crypto Trading

• Licensed by HKMA 2019, largest digital bank in Hong Kong
• 800,000+ users
• Direct crypto trading within banking app
• Seamless fiat-crypto conversion
• Modern infrastructure designed for digital assets

Other Licensed Digital Banks (8 total as of September 2025)

• HKMA has granted licenses to 8 digital banks
• Generally more open to crypto businesses than traditional banks
• Improved access for licensed VATPs

TRADITIONAL BANKS

Challenges: Traditional banks remain cautious about crypto businesses. Account opening difficult for exchanges and VASPs. Enhanced due diligence and compliance requirements. 3-6 month process typical.

Trend: Improving as regulatory clarity increases. SFC VATP licensing significantly helps banking access.

PARTNERSHIP MODEL

HKMA and regulators expect banks providing virtual asset services to partner with licensed VATPs. Collaboration between traditional finance and crypto platforms encouraged.

INTERNATIONAL CRYPTO BANKS SERVING HONG KONG

Sygnum Bank: World's first regulated digital asset bank (Swiss-based, serves HK clients). Banking, trading, custody, staking, tokenization.

Amina Bank: Regulated crypto bank offering comprehensive services.

Bank Frick (Liechtenstein): Serves crypto businesses in Asia, established 1998.

ACCOUNT OPENING REQUIREMENTS

For Businesses:

• SFC VATP license (significantly improves access)
• Comprehensive AML/KYC procedures
• Business plan and financial projections
• Source of funds documentation
• Compliance framework demonstration
• 3-6 month timeline typical

For Individuals:

• ZA Bank: Direct crypto trading in app
• Traditional banks: Generally accept deposits/withdrawals from licensed exchanges
• International transfers: Available through most banks

RECENT DEVELOPMENTS (2024-2025)

Regulatory Support: HKMA actively encouraging banks to serve licensed crypto businesses. Government promoting Hong Kong as crypto hub.

Stablecoins Bill: Establishing comprehensive framework for stablecoin services.

Crypto Dealing & Custody: Regimes being finalized, improving banking relationships.

Eased Restrictions: Order book ring-fencing relaxed November 2025. Improved liquidity access for VATPs. Cross-border banking easier.

PRACTICAL BANKING OPTIONS

Individuals: ZA Bank preferred, traditional banks accept licensed exchange transactions.

Businesses: Digital banks preferred, traditional banks require SFC licensing, offshore buffer accounts sometimes used (EMI providers), partnership with licensed VATPs improves access.

CHALLENGES

• Traditional banking sector still conservative
• Account opening 3-6 months for crypto businesses
• High minimum deposits sometimes required
• Ongoing transaction monitoring and reporting

ADVANTAGES

• Strong rule of law and common law system
• Regulatory clarity improving rapidly
• Government actively supporting crypto industry
• Major financial center with robust infrastructure
• ZA Bank offering integrated crypto-banking solution
• 8 licensed digital banks providing alternatives

https://www.sfc.hk/