Since the U.S. Securities and Exchange Commission approved the listing of the first 11 spot Bitcoin ETFs on January 10, Hong Kong’s financial market has also made new progress in incorporating virtual assets. On Monday, April 15, according to public information, the Hong Kong subsidiaries of mainland public funds, Boshi International, China Asset Management (Hong Kong), and Harvest International, have received in-principle approval from the Hong Kong Securities Regulatory Commission to issue virtual asset spot ETF products. It is reported that after being approved for this business, the manager can provide virtual asset management services to investors and apply to the regulatory authorities for the issuance of ETF products that can invest in spot Bitcoin and spot Ethereum. Ordinary investors can purchase related products through the Hong Kong Stock Exchange. .
Previously, TaxDAO has written an article analyzing the tax-related issues of Hong Kong Bitcoin ETF. This article organizes and restates the corresponding key points.
1. Conditions for investors to invest
At present, the Hong Kong government has legislated on cryptocurrency trading. Only exchanges in Hong Kong that have obtained a license from the Hong Kong Securities Regulatory Bureau can legally trade cryptocurrency. Since ETFs do not count as direct purchases of virtual currencies, under Hong Kong’s current laws, cryptocurrency ETFs are instead regarded as fund regulations. Therefore, as long as they are legally listed on the Hong Kong Securities Regulatory Commission and the Hong Kong Stock Exchange, they can be purchased through legal channels. .
As far as the current trading methods in Hong Kong are concerned, anyone who buys ETFs needs to purchase fund units with a specific minimum limit, and different entry thresholds will cause different buying and selling costs. For example, the entry threshold for Samsung Bitcoin Futures Active ETF is 50 fund units, while the CSOP Bitcoin Futures ETF (3066.HK) has 100 fund units. At the same time, there are investor restrictions in Hong Kong. According to the requirements of the “Joint Circular”, the sales of virtual asset-related products must comply with the requirements of the relevant jurisdictions, that is, virtual asset spot ETFs are prohibited from being sold to investors in mainland China. Products related to virtual assets are not offered or sold directly or indirectly in Mainland China to, or for the benefit of, legal persons or natural persons in Mainland China. Legal persons or natural persons in Mainland China are not allowed to directly or indirectly purchase Bitcoin ETFs without first obtaining all necessary government approvals from Mainland China.
2. Tax treatment for Hong Kong and Singapore residents investing in Bitcoin ETFs
The underlying taxes on Bitcoin ETFs are roughly the same as other ETFs, involving capital gains taxes, income taxes, and withholding taxes. In the sale and redemption of ETFs, the sale constitutes a capital gains tax event, while the redemption does not constitute a taxable event and no tax is required; at the same time, dividends received from investing in ETFs in other countries and regions will involve withholding tax.
It should be noted that the Bitcoin ETF product does not provide dividends and dividends because it tracks the price of Bitcoin rather than traditional company stocks. In Hong Kong, investors in Bitcoin ETFs generally do not need to pay profits tax on the spread income obtained by selling ETFs. However, the specific tax situation may depend on the investor’s residence and jurisdiction of investment target, as well as the term of the investment, etc. Factors vary.
2.1 Tax treatment for Hong Kong residents investing in Hong Kong Bitcoin ETF
According to Hong Kong’s tax system, the territory implements the territorial source principle, that is, only profits and income generated in or originating from Hong Kong are taxed. Under normal circumstances, individuals and companies in Hong Kong do not need to pay tax on capital gains, that is, there is no need to pay capital gains tax on gains made by investing in Bitcoin ETFs.
Regarding the identification of “capital gains”, the Hong Kong authorities stipulate that gains from the sale of investment securities held for the purpose of long-term investment have a capital nature; gains generated for the purpose of short-term trading may be of a trading nature and are trading income. Taxable. Therefore, if an investor’s trading behavior is frequent and the holding period is short, the spread income obtained from frequent trading of Bitcoin ETFs may be defined as trading income, in which case Hong Kong profits tax may be required (i.e. Commonly conceptualized income tax). In other words, as long as Hong Kong resident individuals or companies do not obtain gains through frequent trading of Bitcoin ETFs, they generally do not need to pay taxes on such gains.
2.2 Tax treatment for Singapore residents investing in Hong Kong Bitcoin ETF
Singapore generally does not tax capital gains made by individuals and companies. However, similar to Hong Kong, in order to avoid tax avoidance, if the investment period is short and transactions are frequent, the income from the sale of securities and equity may be regarded as business income and thus subject to tax.
At the investor level, Singapore also implements the territorial source principle, which only taxes income generated in or sourced from Singapore. Individuals and corporations generally do not pay taxes on capital gains.
Specific to the situation of investing in Hong Kong Bitcoin ETF, for Singaporean individual investors, the income obtained from investing in Hong Kong Bitcoin ETF shall be taxed in Hong Kong in accordance with Hong Kong regulations (generally no tax is required). After the capital gains are remitted to Singapore, the income will generally be taxed according to Singapore tax laws. No tax required.
For corporate investors, the Singapore Ministry of Finance proposed the Income Tax (Amendment) Bill No. /2023 amendment in 2023, in which the new 10L entry updated the foreign income tax exemption rules. This rule stipulates that gains derived by a company from the disposal of “foreign assets” (i.e. any rights or interests located outside Singapore) after 1 January 2024 will be treated as under section 10(1)(g) of the Income Tax Act. The income taxable in the relevant year of assessment. This means that Singaporean companies investing in Hong Kong Bitcoin ETF will bear corresponding income tax obligations and should declare and pay taxes in accordance with the relevant regulations of the Singaporean authorities.
Additionally, for ordinary ETFs, dividend income received by a Singapore resident company from overseas sources is tax-free if the following conditions are met: (1) When the income from overseas sources is received in Singapore, the highest corporate tax rate on the income in that overseas country is (nominal tax rate) is at least 15%; (2) the income has been taxed overseas; (3) the authorities consider that tax exemption is beneficial to resident companies.
This article was obtained by “How to pay taxes when investing in Hong Kong spot Bitcoin ETF?” 》Reprinted with permission, author: Taxdao
