Hong Kong launches public consultation on cryptocurrency tax regulations

Against the backdrop of an increasingly clear global digital asset regulatory landscape, Hong Kong is taking a crucial step with its consistent prudence and foresight. Recently, the Hong Kong SAR government officially announced a two-month public consultation on the introduction of the international Crypto-Asset Reporting Framework (CARF) and the revision of the existing Common Reporting Standard (CRS). This move not only signifies Hong Kong’s determination to align its cryptocurrency tax transparency standards with the highest international benchmarks but also starkly contrasts with the tightening regulatory policies in Mainland China under the “One Country, Two Systems” framework, highlighting its unique strategic positioning as a global virtual asset hub.

New Regulatory Chapter

The core of this consultation is the adoption of the CARF framework advocated by the Organisation for Economic Co-operation and Development (OECD). CARF aims to establish a global, standardized automatic exchange of tax information system specifically targeting crypto-asset transactions. In simple terms, once implemented, financial institutions and virtual asset service providers in Hong Kong will be required to collect and report their clients’ crypto-asset transaction information to tax authorities. This information will then be shared via automatic exchange mechanisms with other jurisdictions that adopt CARF.

Hong Kong Financial Secretary Christopher Hui has explicitly stated that adopting CARF will demonstrate Hong Kong’s strong commitment to promoting international tax cooperation and combating cross-border tax evasion. This initiative is not a policy shift but a natural evolution of Hong Kong’s existing regulatory framework. Since 2018, Hong Kong has been auto-exchanging financial account information with partner jurisdictions under the CRS framework annually. Incorporating CARF into the system formally integrates the emerging category of crypto assets into the existing international tax transparency network, filling potential regulatory gaps.

According to the consultation document, Hong Kong plans to start auto-exchanging crypto-related tax data with qualifying partner jurisdictions from 2028, with full implementation expected by 2029. To ensure a smooth transition, the government is also seeking industry opinions on establishing transitional arrangements, aiming to help reporting entities adapt to the new reporting requirements without disrupting existing compliance systems. This meticulous planning reflects the Hong Kong government’s balanced approach to strengthening regulation while considering industry adaptability and market stability.

Hong Kong’s move occurs amidst the widespread global support for CARF. As of early December 2025, 76 countries and regions have committed to adopting CARF. The latest OECD data shows that 48 countries plan to implement it before 2027, and 27 countries before 2028. Notably, even the previously cautious United States has set 2029 as its target year. Additionally, 53 countries have signed the legal framework for automatic information exchange—the Multilateral Competent Authority Agreement (MCAA).

However, the pace is not uniform worldwide. For example, Switzerland, a financial hub, has postponed implementing CARF until 2027 and is still carefully evaluating with which countries to exchange data. The IRS’s proposal to join CARF is also under internal review. These differences reflect the complex considerations each jurisdiction makes balancing innovation, privacy, security, and international compliance obligations. Nonetheless, the global trend is clear: the era of anonymous crypto assets is ending, and transparency and regulation are irreversible directions.

Clear Divisions

While Hong Kong actively embraces the global crypto regulation framework, Mainland China has sent starkly opposite signals. Seven major financial industry associations—such as the China Internet Finance Association, the Banking Association, and the Securities Association—jointly issued risk alerts, launching the most severe and comprehensive crackdown on cryptocurrencies since the full withdrawal of exchanges and mining activities in 2021.

The most notable aspect of this action is that for the first time, “Real-World Asset Tokenization (RWA)” has been explicitly defined as an illegal financial activity. The official statement directly states that China’s financial regulators “have not approved any real-world asset tokenization activities,” and equates it with stablecoins, aircoins (like Pi coin), mining, and other activities, viewing them as pretexts for illegal fundraising and pyramid schemes.

Regulators in China’s concerns are evident. They believe RWA could become a sophisticated tool for capital outflows, allowing individuals to convert domestic assets into tokens, transfer them to offshore wallets, and exchange for foreign currency, thus bypassing traditional banking and foreign exchange controls. Legal experts note that the joint statement delineates three red lines that cannot be crossed: Qualifying as a financing transaction: regardless of how RWA technology is packaged, its essence is viewed as a fundraising mechanism involving token issuance and trading, which must be subject to existing financial laws, especially the Securities Law and regulations banning illegal financial activities. Dismissing its risk controllability: regulators believe that even if project teams claim assets are genuine, the token structure cannot guarantee the legal ownership and settlement of underlying assets, making risks uncontrollable. Declaring its illegality: explicitly states that all RWA activities are unapproved, with no “regulatory exploration” or “pending registration” gray areas.

More severely, the statement creates what analysts call a “four-layer blockade”: cutting off mining infrastructure, blocking stablecoin payment channels, closing RWA pathways, and eliminating fraudulent projects. It also explicitly extends legal responsibility to “domestic staff of offshore virtual currency service providers” and domestic institutions and individuals providing services to them. This means that for practitioners, the only compliant path is to “completely go offshore”—relocating legal structures, asset custody, technical teams, and user access out of Mainland China.

This stark policy divergence vividly illustrates the implementation of “One Country, Two Systems” in the field of digital finance. Hong Kong is leveraging its unique legal and financial systems to create a regulated, globally open virtual asset center, with its stablecoin licensing system attracting 80 applications, and RWA pilot projects progressing in an orderly manner (limited to offshore assets and non-mainland users). Meanwhile, Mainland China, prioritizing national financial security and social stability, has chosen a path of comprehensive prohibition and blockade.

Conclusion

It is worth noting that under the trend toward transparency, markets are constantly exploring new possibilities. Data shows that the Cayman Islands has experienced a 70% year-over-year increase in foundation company registrations. Legal experts suggest that the current CARF framework may mainly target active trading entities, while structures that merely “passively hold” crypto assets—such as protocol treasuries, investment funds, or certain passive foundations—may have ambiguous reporting obligations. This raises a key question: as global reporting rules tighten, could these structures become new “safe havens,” and how might regulators respond to such potential evasion in the future?

In summary, Hong Kong’s initiation of the public consultation on CARF is a cautious yet firm step in its global cryptocurrency regulation race. It not only fulfills its commitment to international tax transparency but also strategically consolidates its position as an international financial center. Meanwhile, the stark contrast with Mainland China’s strict bans highlights Hong Kong’s institutional advantages and unique role under “One Country, Two Systems,” providing an excellent case study on how different regulatory philosophies influence market development. How Hong Kong continues to navigate this path—balancing innovation and compliance—will profoundly impact the future landscape of global digital assets.