Hong Kong Digital Asset Tax Regulatory Analysis Report No. 7 | Hong Kong-United States Comparison

Written by: Xie Yancen

【Scope of Research】This report systematically reviews Hong Kong’s tax rules on digital assets from 2020 to the present. We analyze various guidelines issued by the Hong Kong Inland Revenue Department, regulatory documents from the Securities and Futures Commission and the Hong Kong Monetary Authority, relevant ordinances passed by the Legislative Council, and official policy declarations, aiming to provide readers with a comprehensive and clear regulatory landscape.

【Key Conclusions】Looking back at the development over these years, Hong Kong’s digital asset tax regulation has followed a clear path: first establishing the basic principles of digital asset taxation with DIPN 39 in 2020, then gradually supplementing regulatory documents (for trading platforms, staking services, stablecoins) to support tax administration, followed by legislative implementation of the Crypto Asset Reporting Framework (CARF), and finally offering tax incentives through policy declarations. Overall, the trend is toward more standardized and transparent regulation, increasingly aligned with international standards.

Chapter 7: Comparison of Digital Asset Tax Management in Hong Kong and the United States

After reviewing the regulatory systems for digital asset taxation in Hong Kong and the U.S., this chapter provides a comprehensive comparative analysis, clearly presenting core similarities and differences, offering reference for cross-border planning and compliance for digital asset investors and market participants.

7.1 Comparison of Tax Principles

7.1.1 Taxation Principles

Hong Kong: Strictly follows the territorial taxation principle, taxing only profits from digital asset transactions that originate or are derived from Hong Kong. Digital asset transactions outside Hong Kong are not required to be reported or taxed by the Hong Kong tax authorities, focusing tax enforcement on locally taxable activities.

U.S.: Implements a worldwide income taxation principle, covering a broad scope—U.S. citizens, green card holders, and tax residents meeting substantial presence tests must report and pay taxes on digital asset transactions worldwide, with no territorial exemptions.

7.1.2 Capital Gains Tax

Hong Kong: No capital gains tax, a significant advantage. Gains from long-term holdings of digital assets (like Bitcoin, Ethereum) are considered capital appreciation and are not taxed; only if trading is deemed frequent and organized as a business, profits are taxed as business income.

U.S.: Has a comprehensive capital gains tax system, with rates varying by holding period. Gains from assets held less than one year are short-term capital gains taxed at ordinary income rates (up to 37%). Long-term gains (held over one year) are taxed at tiered rates (0%, 15%, 20%), with collectibles (such as some NFTs) taxed at a maximum of 28%.

7.1.3 Gift and Estate Taxes

Hong Kong: Since 2006, gift and estate taxes have been abolished. Gifts and inheritances of digital assets do not incur tax obligations; focus is on subsequent disposal transactions, greatly reducing tax costs for wealth transfer.

U.S.: Maintains gift and estate taxes with a unified exemption. In 2026, the lifetime exemption is $15 million; amounts exceeding this are taxed at up to 40%. Digital assets as property are included in gift and estate calculations, making tax planning more complex.

7.2 Tax Treatment Comparison

7.2.1 Classification of Digital Assets

Hong Kong: Uses a transaction-based classification with high flexibility. Long-term holdings are treated as capital assets, exempt from tax; frequent trading or arbitrage-focused activities are considered inventory, taxed as business profits. The core depends on transaction frequency and purpose.

U.S.: Applies a uniform property classification, with no distinction. All digital assets are treated as property, and sales or exchanges trigger capital gains or losses, regardless of trading frequency or purpose. Only specific scenarios (like professional mining) are taxed as ordinary income.

7.2.2 Common Transaction Scenarios and Tax Treatment

7.2.3 Cost Basis Accounting

Hong Kong: No statutory method; high flexibility. Usually allows reasonable methods (FIFO, weighted average), requiring consistency and traceability to support tax filings.

U.S.: Strict and clear rules. From January 1, 2025, prohibits mixing cost basis across wallets/addresses; must be calculated per wallet/address. Methods like FIFO, LIFO, HIFO are permitted, but must be consistent; changes require IRS approval.

7.3 Regulatory Framework Comparison

7.3.1 Regulatory Document System

Hong Kong: Builds a “Guidelines + Policies + Legislation” three-in-one system, balancing compliance and development.

Tax Guidelines: DIPN 39 (2020) clarifies core principles of digital asset taxation.

Regulatory Guidelines: Virtual Asset Trading Platform Guidelines (2023), Virtual Asset Staking Service Guidelines (2025).

Legislation & Policies: Stablecoin Ordinance (2025), Digital Asset Development Policy Declaration 2.0 (2025), Draft Tax Ordinance Amendments (2026).

U.S.: Focuses on “Notice + Ruling + Legislation,” emphasizing tax compliance and risk control.

Tax Notices: Notice 2014-21, Notice 2023-34, clarifying tax treatment of various transactions.

Tax Rulings: Revenue Ruling 2019-24, 2023-14, detailing specific scenarios.

Legislation & Guidelines: Infrastructure Investment and Jobs Act (2021), 2022 IRS tax guides, establishing regulatory boundaries.

Reporting Forms: Form 1099-DA standardizes digital asset transaction reporting.

7.3.2 Information Reporting Requirements

Hong Kong: Uses a “step-by-step” approach, balancing compliance and market adaptation.

Crypto Asset Reporting Framework (CARF): Planned to start data collection in 2027, with automatic info exchange with partner jurisdictions in 2028.

CRS Revision: Planned for 2029, including crypto assets in cross-border reporting.

Licensee Recordkeeping: Under the Tax Ordinance and specific guidelines, records retained for at least 7 years.

U.S.: Enforces “Mandatory Reporting + Strict Regulation,” with high transparency requirements.

Form 1099-DA: For 2025 transactions (2026 tax year), brokers report total gains; from 2026 (2027 tax year), also report cost basis and holding period.

FBAR: Foreign financial accounts exceeding $10,000 at any time must be reported.

Form 8938: Foreign financial assets exceeding thresholds must be declared.

7.4 International Cooperation (Cross-Border Information Exchange)

Hong Kong: Leverages its status as an international financial center, gradually improving cross-border info exchange.

Implementing OECD’s CARF, planning to conduct automatic exchange with partner jurisdictions by 2028.

Advancing CRS revisions, including crypto assets from 2029, enhancing tax transparency.

Has signed over 40 comprehensive double taxation agreements, reducing cross-border double taxation risks.

U.S.: Early and broad cross-border cooperation, mainly unilateral and multilateral.

Commits to implementing OECD’s CARF, planning to exchange info with eligible jurisdictions by 2029.

Has not adopted CRS; relies on bilateral tax treaties and FATCA for cross-border info sharing, not participating in multilateral automatic exchange.

FATCA mandates foreign financial institutions to report U.S. account info, strengthening cross-border tax enforcement.

Has signed multiple tax treaties to allocate cross-border digital asset tax responsibilities.

7.5 Tax Incentive Measures Comparison

7.5.1 Incentive Policies

Hong Kong: Focused on “Attracting Capital, Promoting Innovation.”

Tokenized ETF stamp duty exemption to lower trading costs.

Private offering funds and family investment vehicles (FOIV) involving digital assets to enjoy capital gains tax exemption (pending legislation by 2026), attracting institutional investors.

U.S.: Focused on “Charitable Donations, Short-term Exemptions,” with narrower scope.

Wash Sale Rule temporarily not applying to digital assets until December 31, 2025, allowing short-term buy-sell to offset losses.

Donations of long-term held digital assets to qualified charities can be deducted at fair market value without capital gains tax, encouraging philanthropy.

7.6 Core Advantages of Hong Kong for Digital Asset Investors

Based on a comprehensive comparison of Hong Kong and U.S. digital asset tax regimes, combined with Hong Kong’s tax system features and regulatory environment, Hong Kong’s core advantages for digital asset investors (individuals and institutions) can be summarized into five key points, highlighting its unique value as a global compliant digital asset investment hub:

Low Tax Burden: No capital gains tax on long-term holdings, maximizing investment returns; gains are fully exempt, significantly higher than U.S. maximum 20% (28% for collectibles). No gift or estate tax, facilitating wealth transfer without extra costs, outperforming the U.S. high exemption + high tax rate model.

Flexible Tax Treatment: Differentiates based on transaction purpose, supporting long-term value investment (tax-exempt) and short-term trading (taxable), suitable for individual investors, institutions, and professional traders. U.S. treats all as property with rigid tax rules, less adaptable.

Lower Compliance Costs: Stepwise reporting approach, no mandatory info reporting before 2027, giving ample time for adaptation; flexible cost basis accounting, easier to operate than U.S. strict 2025 Form 1099-DA requirements, reducing compliance costs.

Targeted Incentives: Specific policies like tokenized ETF stamp duty exemption and digital asset trading gains tax exemption (pending legislation) lower transaction and tax costs for institutions, attracting long-term capital like private funds and family offices, fostering a high-quality investment ecosystem.

Cross-Border Friendly: Territorial taxation means offshore digital asset gains are not taxable, suitable for cross-border investors; gradually improving cross-border info exchange and signing double taxation treaties to avoid double taxation risks, offering higher certainty and planning space compared to the U.S. global taxation + bilateral info exchange model.

In summary, with its “low tax burden, high flexibility, strong incentives, low compliance costs,” Hong Kong has become a preferred destination for global digital asset investors, especially those pursuing long-term value, asset inheritance, and cross-border deployment, ensuring compliance and maximizing returns.