Hong Kong Eyes Tax Breaks for Crypto, Private Credit, and Wealth Investments

Hong Kong is proposing significant tax exemptions for private equity funds, hedge funds, and wealthy individuals’ investment vehicles as part of its bid to become a leading offshore financial hub.

In a 20-page draft plan shared with the Financial Times, the government emphasized that tax policy is a “key consideration” for asset managers deciding where to operate. The proposal aims to create a “conducive environment” for fund management, expanding tax-free investments to include cryptocurrencies, private credit, overseas properties, and carbon credits.

This initiative aligns with Hong Kong’s push to establish itself as a center for cryptocurrency businesses. The move comes amid Bitcoin’s recent surge following Donald Trump’s pro-crypto rhetoric and election victory, which has reignited optimism in the industry.

The government has opened a six-week consultation on the proposal, which is part of an ongoing competition with Singapore to attract billionaires and fund managers. Both cities have introduced low-tax fund structures to accommodate large capital pools.

If adopted, the new measures would bring “certainty” for family offices and investors, according to Patrick Yip, vice chair at Deloitte China. He noted that some family offices in Hong Kong allocate as much as 20% of their portfolios to digital assets.” This is an important step in boosting Hong Kong’s status as a financial and crypto trading hub,” Patrick Yip said.

Wealthy Chinese individuals are increasingly setting up private investment vehicles outside mainland China amid President Xi Jinping’s anti-wealth crackdown. However, Singapore’s stricter anti-money laundering regulations have slowed the establishment of family offices there, making Hong Kong’s tax-friendly approach more appealing.

Darren Bowdern, KPMG’s head of asset management tax for Asia, said these changes aim to place Hong Kong on equal footing with jurisdictions like Singapore and Luxembourg by ensuring funds are not subject to taxation.

Hong Kong has also been promoting “open-ended fund companies,” low-tax structures that can house multiple sub-funds. As of October, over 450 such funds have been launched. By comparison, Singapore introduced its own “variable capital company” structure in 2020, with over 1,000 funds now operating under this framework.

UBS CEO Sergio Ermotti has warned that Switzerland risks losing its status as the global wealth management hub, citing Hong Kong and Singapore’s rapid progress in attracting asset managers and family offices.