Hong Kong is moving to solidify its status as a financial and crypto hub by proposing tax exemptions for hedge funds, private equity funds, and high-net-worth family offices, the Financial Times reported on Nov. 28.

The proposal, outlined in a 20-page government document, aims to bolster the city’s appeal to global asset managers and high-net-worth individuals.

Exempting tax on gains

The government initiative, currently under a six-week consultation, would exempt tax on gains from cryptocurrencies, private credit, overseas property, and carbon credits.

Officials cited taxation as a key factor in asset managers’ decisions on where to base operations, emphasizing the need to create a “conducive environment.”

Patrick Yip, vice chair 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 heightened competition between Hong Kong and Singapore to attract global investors. Both cities have introduced lightly taxed fund structures to manage large pools of capital.

Hong Kong’s proposal mirrors Singapore’s 2020 launch of variable capital companies, which have gained traction with over 1,000 fund registrations. In contrast, Hong Kong has recorded more than 450 open-ended fund companies.

Broader trend

Hong Kong’s move aligns with a broader trend of wealthy Chinese individuals establishing private investment vehicles outside mainland China, particularly as Beijing cracks down on conspicuous displays of wealth.

However, Singapore’s recent push to tighten money laundering regulations has complicated its appeal, slowing the establishment 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 align Hong Kong with global offshore financial hubs like Luxembourg and Singapore.

The proposal’s timing coincides with renewed optimism in the crypto sector following President Donald Trump’s recent electoral victory in the US, which has caused Bitcoin to surge to new highs as investors anticipate that 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 its recent progress alongside Singapore.

As Hong Kong vies to outpace regional competitors, its tax exemptions and legal structures are set to play a pivotal role in attracting global capital and strengthening its position as a leading financial and crypto hub.

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