By Vlad Cuc, specialist in company formation matters
Hong Kong is one of the Asian countries that have shown a great degree of openness towards the development of the fintech industry. Crypto and blockchains are benefiting from the favorable business regime in the city and the number of start-up companies in this field has grown in recent years. Hong Kong is standing out from other Asian countries because of its favorable regulatory regime and its policies for blockchain and cryptocurrency providers.
We invite you to watch the following video on opening a cryptocurrency business in Hong Kong:
Hong Kong, a cryptocurrency center
Cryptocurrencies are virtual currencies for which a special cryptography is used for security purposes. This makes the currency difficult to counterfeit. Moreover, this currency is not issued by a central authority, thus clearly separating it from the Government and its control.
The first cryptocurrency that became well-known to the general public was bitcoin. Now, other blockchains like Gatecoin are making their appearance in financial centers like Hong Kong.
The Special Administrative Region classifies Bitcoin and other cryptocurrencies as a type of virtual commodity that is created virtually/in the virtual world. Government officials have yet to release a clear framework for regulating this virtual currency. Even with a lack of a clear regulatory framework for virtual currencies, Hong Kong remains one of the main crypto/blockchain markets in Asia because of its sound approach towards financial services.
While it is located close to China, Hong Kong does not share the same view and treatment of cryptocurrencies. While initial coin offerings (the cryptocurrency equivalent for an initial public offering) are banned in China, they are permitted in Hong Kong and while the Mainland has continued to restrict access to this field, Hong Kong has remained opened, taking advantage of the restrictions that are implemented in a jurisdiction that is based at such close proximity. The fact that the Special Administrative Region is separate from China is what attracts many foreign companies, multinationals, and foreign investors.
Hong Kong is seen by experts as an ideal jurisdiction for those who want to open a Hong Kong company that activates in the crypto/blockchain industry.
The treatment of cryptocurrency companies in Hong Kong
Company formation in Hong Kong is an appealing option for investors in blockchain and cryptocurrency not only because of the local favorable conditions for businesses but also because of the pragmatic approach in this sector. As stated above, China has not implemented a favorable policy and this can be used to the advantage of Hong Kong, especially since the general approach is a positive one.
Many investors are not only opening companies involved in the development of blockchain technology or are launching initial coin offerings, but they are also opening crypto exchanges. There are some intentions of regulating the regime for these activities. For example, there have been announcements from the Securities and Futures Commission regarding the possible implementation of a regulatory regime for crypto exchanges (a regulatory sandbox). As far as funds that are managed and marketed in Hong Kong are concerned, when more than 10% of their assets are invested in cryptocurrency, then they must be approved by the Securities and Futures Commission.
A distinction can be made in the treatment of virtual currencies: they may be regarded a virtual currencies or virtual commodities, as a virtual asset, as part of a fund (also considered virtual assets) or as part of an exchange. According to the law in Hong Kong, there is no foreign exchange control policy. Cryptocurrency exchanges, as well as Bitcoin ATMs in Hong Kong, do not fall under the types of businesses for which a Monet Service Operator License is required.
As far as the taxation of income from cryptocurrencies is concerned, this type of income will be stated in the tax return. As per the local taxation laws, income derived in Hong Kong is subject to the local taxes while income derived from outside of the jurisdiction is not subject to tax. Locally registered companies are taxed on their worldwide income while non-resident companies are taxed on their Hong Kong-source income.
One of our agents who specialize in Hong Kong company formation can provide more details on the requirements and the guidelines set by the Commission.
Conditions for company formation in Hong Kong
Cryptocurrency companies in Hong Kong need to be incorporated and registered as per the current Companies Law. All new corporate structures are registered with the Companies Registry and function based on a Business Certificate.
Company registration in Hong Kong is a generally simple process. Investors can follow these main steps when deciding to open a company:
- Choose a company name: the name of the new company needs to be unique and observe the name guidelines; an online check can be performed.
- Prepare the company documents: the Articles of Association need to be drafted according to the type of company and its particularities.
- Arrange the address: locally registered companies are required to have a registered address in Hong Kong.
- Company structure: make the director appointments and establish the general structure of the company, including a secretary, if applicable.
- Register: submit the registration form along with all of the needed documents to the Companies Registry.
One of our company formation agents in Hong Kong can help you during the company set-up procedure.
The Hong Kong Government has a positive approach to blockchain and cryptocurrencies and many projects are active in this jurisdiction, as well as some consultancies and advisories in this field. Investors can benefit from company registration in Hong Kong and the subsequent start of a crypto or blockchain business.
Investments in Hong Kong
The Special Administrative Region’s appeal as a financial center and as a business destination, in general, is highlighted with the help of the following statistics:
-incorporation at the beginning of the year: in January 2019 there were 10,701 private companies and 5 public companies incorporated;
-incorporation at the start of the second quarter: in April there were more private companies, 13,724 and 2 public companies registered with the Companies registry.
-incorporation at the end of Q2: in June, there were 2 public companies and 10,370 private companies.
-incorporation in 2018: from March to December, the total number of private companies incorporated was 151,739.
Investors who are considering starting a cryptocurrency business in Hong Kong can reach us for more details about the current regulatory regime and assistance. Contact us for more information and advice on opening a Hong Kong company.
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