Hong Kong is strengthening its status as a financial and cryptocurrency center by proposing tax exemptions for hedge funds, private equity funds and wealthy family offices, the Financial Times reported on November 28.
The proposal, set out in a 20-page government document, aims to boost the city’s appeal to global asset managers and high-net-worth individuals.
Exemption from tax on profits
The government initiative, currently running for six weeks, would exempt taxes on profits from cryptocurrencies, private credit, overseas ownership and carbon credits.
Officials cited taxation as a key factor in asset managers’ decisions on where to locate their operations, stressing the need to create a “conducive environment.”
Patrick Yip, vice chairman and international tax partner at Deloitte China, said the exemption would boost the industry in Hong Kong. He noted that family offices in Hong Kong allocate up to 20% of their portfolios to digital assets, a significant figure in the growing crypto sector.
The announcement comes amid increased competition between Hong Kong and Singapore to attract global investors. Both cities have introduced lightly taxed fund structures to manage large capital pools.
Hong Kong’s proposal reflects the launch of variable capital companies in Singapore in 2020, which have gained traction with more than 1,000 fund registrations. In contrast, Hong Kong has registered more than 450 open-end fund companies.
Broader trend
Hong Kong’s move joins a broader trend of wealthy Chinese individuals setting up private investment vehicles outside mainland China, especially as Beijing cracks down on conspicuous displays of wealth.
However, Singapore’s recent attempt to tighten anti-money laundering regulations has hampered its appeal, delaying the creation of new family offices due to increased due diligence.
Darren Bowdern, head of asset management tax for Asia at KPMG, noted that the tax exemption proposal aims to bring Hong Kong on par with global offshore financial centers such as Luxembourg and Singapore.
The timing of the proposal coincides with renewed optimism in the crypto sector following President Donald Trump’s recent election victory in the US, which sent Bitcoin soaring to new highs as investors expect Trump’s crypto-friendly stance could rejuvenate the industry.
UBS CEO Sergio Ermotti predicted earlier this year that Hong Kong could surpass Switzerland as a global wealth management hub, citing recent progress alongside Singapore.
As Hong Kong battles to surpass regional competitors, its tax exemptions and legal structures will play a crucial role in attracting global capital and cementing its position as a leading financial and crypto hub.