By Vlad Cuc, specialist in company formation matters
Hong Kong is one of the Asian countries that have shown a great degree of openness towards the development of the fintech industry. This is one of the reasons why investors are keen on setting up a company in Hong Kong. Crypto and blockchains are benefiting from the favorable business regime in the city and the number of start-up companies in this field has grown in recent years.
The crypto company
Cryptocurrencies are virtual currencies for which special cryptography is used for security purposes. This makes the currency difficult to counterfeit. Moreover, this currency is not issued by a central authority, thus clearly separating it from the Government and its control.
The first cryptocurrency that became well-known to the general public was Bitcoin. Now, other blockchains like Gatecoin are making their appearance in financial centers like Hong Kong.
Hong Kong stands out, compared to other Asian countries, because of its favorable regulatory regime and its policies for blockchain and cryptocurrency providers.
One of our company formation agents in Hong Kong can give you complete details on the requirements needed to open a cryptocurrency company in Hong Kong and the costs for start-ups.
|Cryptocurrency seen as legal tender (Yes/No)
Local regulatory agency
|The Hong Kong Securities and Futures Commission
Special licenses for those who open a cryptocurrency company in Hong Kong
|Only for certain types of virtual assets. A new regulatory framework is expected
|Special licenses for crypto exchanges in Hong Kong
|Anti-money laundering rules
|Yes, applicable to crypto exchanges
|Special requirements for investors who open a cryptocurrency company in Hong Kong
|Residency requirements for investors
|Types of companies used by those who open a cryptocurrency company in Hong Kong
|The private or public limited liability company (LLC)
|Minimum capital for a cryptocurency company in Hong Kong
|Minimum number of shareholders
|Minimum number of directors
|Standard business license as for all companies, issued upon registration by the Companies Registry
|Mandatory requirements for the crypcoturrency company
|Registered office based in Hong Kong
Cryptocurrency company taxation
|Corporate income tax rate of 8.25% for the first 2 million HKD of assessable profits and 16.5% on the remaining profits
|Reasons to open a cryptocurrency company in Hong Kong
Low tax regime
No nationality restrictions
Crypto and blockchain friendly
The Special Administrative Region classifies Bitcoin and other cryptocurrencies as a type of virtual commodity that is created virtually/in the virtual world.
Recently, the Securities and Futures Commission and the Hong Kong Monetary Authority have released a joint circular on the approach concerning the regulation of crypto assets.
Hong Kong, a cryptocurrency center
The law does not provide for a specific Hong Kong crypto exchange license, however, the distribution of crypto assets is subject to conditions.
At the same time, while there is no formal Hong Kong crypto license, a number of regulatory requirements are in place and investors can read more about these below.
Hong Kong remains one of the main crypto/blockchain markets in Asia because of its sound approach towards financial services.
While it is located close to China, Hong Kong does not share the same view and treatment of cryptocurrencies and setting up a company in Hong Kong is simple.
While initial coin offerings (the cryptocurrency equivalent for an initial public offering) are banned in China, they are permitted in Hong Kong and while the Mainland has continued to restrict access to this field, Hong Kong has remained open, taking advantage of the restrictions that are implemented in a jurisdiction that is based at such close proximity.
The fact that the Special Administrative Region is separate from China is what attracts many foreign companies, multinationals, and foreign investors.
Hong Kong is seen by experts as an ideal jurisdiction for those who want to open a Hong Kong company that activates in the crypto/blockchain industry.
The treatment of cryptocurrency companies in Hong Kong
Company formation in Hong Kong is an appealing option for investors in blockchain and cryptocurrency not only because of the local favorable conditions for businesses but also because of the pragmatic approach in this sector.
As stated above, China has not implemented a favorable policy and this can be used to the advantage of Hong Kong, especially since the general approach is a positive one.
Many investors are not only opening companies involved in the development of blockchain technology or are launching initial coin offerings, but they are also opening crypto exchanges.
There are some intentions of regulating the regime for these activities. For example, there have been announcements from the Securities and Futures Commission regarding the possible implementation of a regulatory regime for crypto exchanges (a regulatory sandbox).
As far as funds that are managed and marketed in Hong Kong are concerned, when more than 10% of their assets are invested in cryptocurrency, then they must be approved by the Securities and Futures Commission.
A distinction can be made in the treatment of virtual currencies: they may be regarded a virtual currencies or virtual commodities, as a virtual asset, as part of a fund (also considered virtual assets) or as part of an exchange.
According to the law in Hong Kong, there is no foreign exchange control policy. Cryptocurrency exchanges, as well as Bitcoin ATMs in Hong Kong, do not fall under the types of businesses for which a Monet Service Operator License is required.
As far as the taxation of income from cryptocurrencies is concerned, this type of income will be stated in the tax return.
As per the local taxation laws, income derived in Hong Kong is subject to local taxes while income derived from outside of the jurisdiction is not subject to tax.
Locally registered companies are taxed on their worldwide income while non-resident companies are taxed on their Hong Kong-source income.
One of our agents who specialize in Hong Kong company formation can provide more details on the requirements and the guidelines set by the Commission.
We invite you to watch the following video on opening a cryptocurrency business in Hong Kong:
The Hong Kong crypto license and other relevant requirements
As previously mentioned, a circular released at the beginning of 2022 sets forth a number of conditions for the distribution of crypto assets.
The new conditions apply both to businesses that have been licensed for this field, as well as for new companies.
Our team briefly lists the main regulatory requirements under the joint circular below.
The distribution of crypto assets
Businesses that act as intermediaries, such as those holding a Hong Kong crypto exchange license, are subject to a number of conditions when they provide these services:
- Suitability: the virtual assets or related products need to be suitable for the clients under any circumstances;
- Information: the intermediary is to provide sufficient information on the nature of the virtual assets, and their risks, with the purpose of allowing the client to be sufficiently informed;
- Warnings: offer a warning statement to the client as needed.
Companies that have obtained the Hong Kong crypto license are required to treat virtual asset related products as complex products, and observe the ongoing regulations for these.
Virtual asset trading platforms that are regulated by the SFC, meaning that they have the equivalent of the Hong Kong crypto exchange license, need to provide proper investor protection and need to comply with the following:
- Offer virtual asset dealing service sonly to professional investors (these selling restrictions apply to products considered complex ones)
- Comply with the ongoing SFC and HKMA requirements for dealing in securities and providing virtual assets dealing services, even in those cases in which the virtual assets are not securities;
- Comply with the same requirements when they offer crypto advisory services (comply with the conditions for the distribution of assets and offering services only to professional investors).
In addition to these, they will need to conduct the virtual asset knowledge test before they can offer crypto advisory services.
This test is to be conducted by intermediaries in order to determine if their clients have the needed knowledge to invest in virtual assets or related products before the intermediary engages in a transaction on their behalf.
If the client does not have the knowledge, the company can proceed only when acting in the client’s best interests and when also observing other provisions.
An exception from the virtual asset knowledge test is in place in case of institutional professional investors and qualified corporate professional investors.
An example of a complex product that should only be offered to a professional investor includes an overseas virtual asset non-derivative exchange-traded fund (ETF).
Investors should note that the provisions set forth by the SFC and HKMA, which are briefly outlined above, are to be implemented by each company (intermediary) that offers virtual assets-related activities.
Companies that are already engaged in these activities are asked to revise their practices and systems and comply with the new requirements.
New companies will need to observe the licensing requirements, such as those for the Hong Kong crypto exchange license, and ensure compliance with all of the ongoing requirements before they start their activities.
We remind interested investors of the prerequisites to obtain a Hong Kong crypto license:
- Be incorporated in Hong Kong;
- Pass the fit and proper test;
- Appoint compliance officers.
Conditions for company formation in Hong Kong
Cryptocurrency companies in Hong Kong need to be incorporated and registered as per the current Companies Law. All new corporate structures are registered with the Companies Registry and function based on a Business Certificate.
Company registration in Hong Kong is a generally simple process. Investors can follow these main steps when deciding to open a company:
- Choose a company name: the name of the new company needs to be unique and observe the name guidelines; an online check can be performed.
- Prepare the company documents: the Articles of Association need to be drafted according to the type of company and its particularities.
- Arrange the address: locally registered companies are required to have a registered address in Hong Kong.
- Company structure: make the director appointments and establish the general structure of the company, including a secretary, if applicable.
- Register: submit the registration form along with all of the needed documents to the Companies Registry.
These steps are relevant when incorporating a limited liability company. Our team can help you set up a company in Hong Kong if you choose this business form.
The private limited liability company is one of the most commonly used business forms in Hong Kong and it is also suitable for those who open a cryptocurrency company.
One of our company formation agents in Hong Kong can help you during the company set-up procedure.
A cryptocurrency company incorporated as a private company in Hong Kong will not be subject to filing annual financial statements with the Companies Registry, however, it will need to maintain its books of account. Our accountants in Hong Kong can help investors with proper bookkeeping services, as well as other solutions, irrespective of the industry in which they activate.
The Hong Kong Government has a positive approach to blockchain and cryptocurrencies and many projects are active in this jurisdiction, as well as some consultancies and advisories in this field. Investors can benefit from company registration in Hong Kong and the subsequent start of a crypto or blockchain business.
Investments in Hong Kong
The Special Administrative Region’s appeal as a financial center and as a business destination, in general, is highlighted with the help of the following statistics:
- incorporation at the beginning of the year: in January 2019 there were 10,701 private companies and 5 public companies incorporated;
- incorporation at the start of the second quarter: in April there were more private companies, 13,724 and 2 public companies registered with the Companies registry.
- incorporation at the end of Q2: in June, there were 2 public companies and 10,370 private companies.
- incorporation in 2018: from March to December, the total number of private companies incorporated was 151,739.
Investors who are considering starting a cryptocurrency business in Hong Kong can reach us for more details about the current regulatory regime and assistance.
Contact us for more information and advice on how to set up a company in Hong Kong.