Hong Kong is considering a capital gains tax exemption for cryptocurrency investments made by hedge funds, private equity funds and some family offices, according to the Financial Times.

The plan to make cryptocurrency tax-free for investment firms and ultra-rich families is part of a proposal that has been circulating in financial media outlets over the past week. The document reportedly outlines a plan to reduce taxes on a range of investments in an attempt to cement Hong Kong’s status as a global hub for finance and wealth management.

The news comes amid what many see as the early stages of a cryptocurrency bull market. Cryptocurrency has surged since Donald Trump’s re-election earlier this month, and many believe the market will rise further as Trump implements what is expected to be a pro-crypto agenda. Hong Kong is poised to outpace regional rivals like Singapore to attract crypto capital.

Hong Kong proposal would make many assets tax-free (for the rich)

In addition to exempting cryptocurrencies, the proposal put forward by the Financial Services Authority and Hong Kong Treasury would also expand the territory’s capital gains tax exemption to include overseas property investments, carbon credits, and private loans.

These exemptions would only apply to private funds and “eligible single-family offices,” so would not benefit ordinary retail investors. The proposal says there will be a six-week consultation period during which the government will seek feedback from stakeholders.

The Financial Times reported that the proposal shows that the Hong Kong government sees taxation as a “key consideration for asset managers” and that it is seeking to create a “friendly environment” for the industry.

Patrick Yip, vice chairman of Deloitte China and global tax partner, said the capital gains tax exemption, if implemented, would “provide certainty” for family offices and investment funds, adding:

Hong Kong remains Asia’s leader in the number of funds and ranks second in total private equity assets under management, according to Reuters. The city is also home to more than 2,700 single-family offices, more than half of which have assets worth more than US$50 million (A$77 million).

Competition to attract crypto intensifies

Hong Kong is part of a global race to attract crypto inflows as the industry gains wider acceptance. The re-election of Donald Trump, with his pro-crypto policies and talk of making the US the “crypto capital of the planet,” has fueled sentiment around crypto and increased competition to attract crypto investments.

Sources close to Trump's transition team claim that the president-elect is considering introducing a capital gains tax exemption for bitcoin and cryptocurrencies produced in the U.S., which could usher in a sort of golden age of cryptocurrency in the U.S.

Trump has also packed his administration with pro-crypto figures, and is apparently considering making the more innovation-friendly Commodity Futures Trading Commission (CFTC) the primary cryptocurrency regulator and is expected to appoint pro-crypto nominees to head other regulatory agencies, such as the Securities and Exchange Commission (SEC).

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