Hong Kong is taking steps to cement its position 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 that the city is looking to attract global asset managers and high-net-worth individuals by exempting taxes on gains from cryptocurrencies, private credit, overseas property, and carbon credits.
The government’s proposal, outlined in a 20-page document, is currently under a six-week consultation period. Officials believe that taxation plays a crucial role in asset managers’ decisions on where to base their operations, and creating a conducive environment is essential for attracting global investors. Patrick Yip, vice chair and international tax partner at Deloitte China, believes that the tax exemption will significantly boost the industry in Hong Kong, especially as family offices in the city allocate up to 20% of their portfolios to digital assets.
This move comes amidst stiff competition between Hong Kong and Singapore to lure global investors. Both cities have introduced lightly taxed fund structures to manage large pools of capital. Hong Kong’s proposal is reminiscent of Singapore’s introduction of variable capital companies in 2020, which has seen over 1,000 fund registrations. In contrast, Hong Kong has recorded more than 450 open-ended fund companies.
The trend of wealthy Chinese individuals establishing private investment vehicles outside mainland China is growing, particularly as Beijing tightens regulations on conspicuous displays of wealth. While Singapore’s recent efforts to tighten money laundering regulations have slowed the establishment of new family offices, Hong Kong’s tax exemption proposal aims to align the city with global offshore financial hubs like Luxembourg and Singapore.
The timing of this proposal coincides with renewed optimism in the crypto sector following President Donald Trump’s recent electoral victory in the US. Bitcoin has surged to new highs as investors anticipate Trump’s crypto-friendly stance could rejuvenate the industry. UBS CEO Sergio Ermotti has predicted that Hong Kong could surpass Switzerland as a global wealth management hub, citing the city’s recent progress alongside Singapore.
As Hong Kong aims to outpace its regional competitors, its tax exemptions and legal structures will play a crucial role in attracting global capital and solidifying its position as a leading financial and crypto hub.