Hong Kong Mandates Crypto Transaction Disclosures To Tax Authorities Arabian Post

(MENAFN- The Arabian Post) clearfix"> Hong Kong has approved legislation requiring cryptocurrency service providers to collect customer and transaction information from 2027, enabling the territory's tax authorities to share the records with overseas counterparts from 2028.

The Legislative Council passed the Inland Revenue (Amendment) (Crypto-Asset Reporting Framework and Amended Common Reporting Standard) Bill on Wednesday, November 4, bringing digital asset transactions within an international system designed to identify cross-border tax evasion.

The measures implement the Crypto-Asset Reporting Framework, or CARF, developed by the Organisation for Economic Co-operation and Development. Covered businesses will have to identify reportable customers, undertake due diligence, maintain records and submit information to Hong Kong's Inland Revenue Department.

The reporting regime is scheduled to take effect on January 1, 2027. Its first reporting period will cover transactions during that calendar year, with the initial international exchange of information expected in 2028. The legislation concerns disclosure and information exchange rather than introducing a separate tax on cryptocurrency transactions.

Secretary for Financial Services and the Treasury Christopher Hui said implementation of international standards for automatic tax information exchange was crucial to maintaining Hong Kong's reputation as an international financial and commercial centre. He said alignment would reinforce confidence among crypto service providers, financial institutions and digital asset users operating and investing in the territory.

Information will be exchanged with eligible partner jurisdictions on a reciprocal basis, subject to confidentiality and data security safeguards. The arrangement is intended to help tax authorities identify transactions involving their residents even when those transactions take place through intermediaries outside their home jurisdictions.

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The obligations extend beyond conventional cryptocurrency exchanges to reporting service providers that facilitate transactions for customers, including qualifying brokers and dealers. Businesses meeting specified connections with Hong Kong will be subject to registration, due diligence and reporting requirements, irrespective of whether their customers are located locally or overseas.

Customer checks will involve identifying tax residence and obtaining relevant taxpayer identification details. Reportable activity includes exchanges between cryptocurrencies and conventional currencies, transactions between different crypto assets and certain transfers. The framework also reaches qualifying digital assets used for investment or payment, rather than being confined to bitcoin or other widely traded tokens.

The new obligations will require affected operators to adapt customer onboarding, transaction monitoring and recordkeeping systems. The information gathered will be used for annual submissions to the Inland Revenue Department, rather than automatically determining whether individual customers owe tax. Tax liability will continue to depend on applicable rules and circumstances.

The legislation also incorporates amendments to the OECD's Common Reporting Standard, which governs the international exchange of financial account information. Those changes will take effect in 2028, with the first exchanges under the revised standard scheduled for 2029, one year after the initial crypto transaction information exchanges.

The revised standard expands coverage to certain digital financial products, including central bank digital currencies, specified electronic money products and financial instruments linked to crypto assets. Financial institutions will also face additional obligations concerning account holders, controlling persons and the information used to establish their tax residence.

Provisions are designed to limit overlapping reporting where a financial institution also qualifies as a crypto-asset reporting service provider. Relevant gross proceeds already reported under CARF generally need not be duplicated under the amended Common Reporting Standard, although institutions may elect to provide the information under both systems.

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The legislation follows a government consultation conducted between December 2025 and February 2026. The bill was gazetted in May and introduced to the Legislative Council in June, before lawmakers approved it alongside amendments addressing issues raised during scrutiny.

Hong Kong's government has committed to international exchanges under CARF as part of efforts to strengthen tax transparency. The territory has already exchanged financial account information annually with partner jurisdictions under the existing Common Reporting Standard since 2018, providing an established mechanism for cooperation between revenue authorities.

The Inland Revenue Department plans to publish guidance explaining compliance requirements and has established a dedicated team to answer industry enquiries and provide technical assistance. Preparations will involve reporting service providers and financial institutions adapting their procedures ahead of their respective commencement dates.

Under the government's implementation timetable, reporting crypto service providers are expected to submit their first annual returns in 2028. The initial exchange with participating overseas authorities is planned for later that year, following the collection of information relating to 2027 transactions.

AP Crypto News Network

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