TNC Business Strategy Research
Hong Kong 2020 Taxation on digital asset in Hong Kong
Taxation on digital asset in Hong Kong
Digital assets are digital representations of value and can be transferred, stored or traded electronically, such as cryptocurrencies, cryptoassets and digital tokens.
Digital assets held for investment
Under the Inland Revenue Ordinance, profits arising from the sale of capital assets are excluded from the charge of profits tax. If digital assets are bought for long-term investment purposes, any profits from disposal would not be chargeable to profits tax. Well-established tax principles would continue to be applicable and the intention at the time of acquisition of the digital assets is always relevant to decide whether they are capital assets or trading stock.
Common business activities involving cryptocurrency include trading of cryptocurrency, exchange of cryptocurrency and mining.
Hong Kong sourced profits from cryptocurrency business activities are chargeable to profits tax. In deciding the source of profits, it is necessary to determine the nature of the profits in question, the relevant operations that produced the profits in question and the place where those profit-generating operations were carried out.
Keeping proper business records in relation to cryptocurrency transactions are required in accordance with the Inland Revenue Ordinance.
Cryptocurrency received as employment income
Employees may receive their salaries in cryptocurrency. The same salaries tax treatment would apply to such income from employment even though it is paid in cryptocurrency. The amount to be reported as the employee’s employment income should be the market value of the cryptocurrency at the time of accrual.