Strategic Legal Services for Obtaining Crypto License in Hong Kong

Crypto-Authorization Process in the Hong Kong Virtual Currency Registry

The crypto authorization process in Hong Kong is simple, though not necessarily easy. The Securities and Futures Commission has streamlined the process in order to clearly express the requirements and obligations of applicants.

The Registration of Hong Kong Company in the Register of Crypto Currency Companies

The registration of Hong Kong companies in the register of cryptocurrency companies is done through a platform called WINGS. The applicant will be guided to enter every detail about their business model, corporation, if relevant, and all the individuals participating in the project.

Before submitting the application, the crypto project must answer all the questionnaires and provide all the documents required. The application must then be signed and the application fees paid. These fees are not just for carrying out the application for a crypto license, but also for registering the mandatory Responsible Officers.

Governmental Statements on Crypto in Hong Kong

Just before launching the new Virtual Assets Trading Platform framework, the government's secretary for financial services and the treasury, Christopher Hui, declared to the press that “cryptos are going to stay and therefore must be regulated”.

A few weeks before, Hong Kong’s financial secretary, Paul Chan, said that “despite the volatility of crypto assets, now is the time to push web3 in Hong Kong”.

These two governmental statements on crypto in Hong Kong clearly depict the intentions of the country regarding virtual assets. It aims to become a safe place for companies and consumers to develop the crypto industry and the markets. This is why it is simultaneously encouraging crypto businesses while regulating them.

Requirements for Companies Engaged in Crypto Activities in Hong Kong

The Licensing Handbook for Virtual Assets Trading Platforms gives a comprehensive overview of the requirements for companies engaged in crypto activities in Hong Kong. There are three sets of requirements to be aware of. These requirements apply differently to the company (or individual) to be licensed, to the Responsible Officers of the project, and to the licensed representatives, if any.

Every company and participant must demonstrate fitness and property. Fitness and property is an assessment of various aspects of the corporation or individual, pertaining to:

• Financial situation and solvency;
• Education, experience, and professional background;
• Absence of criminal record or financial wrongdoings;
• Reputation, character, reliability, and financial integrity.

The fit & proper check is mainly subjective, meaning one shall do their best effort to prove to the regulator that they are trustworthy.

The company should then have a clear business model, detailing its activity and how it serves its clients. It should also explain the corporate governance and structure of the shareholders, ultimate beneficial owners, and other stakeholders.

The applicant must provide policies and procedures to ensure compliance with the laws and rules in force at all times, including but not limited to the qualification of personnel, the systems and internal controls, audit, risk management, data integrity and protection, training material, etc. An independent risk manager should make assessments of the company’s risk exposures and systems.

It is worth noting that only a Hong Kong-based legal entity can apply for the crypto license. It must have at least 2 licensed representatives (a license granted to individuals working in a VATP), one of whom should be an executive director and another should be residing in Hong Kong.

The company should also appoint licensed Representative Officers, whose role is to ensure compliance with AML-CFT rules, due diligence of customers, risk management (financial, software, etc), to manage and conduct audits of the technology and the finances of the company, to monitor potential threats and suspicious activity and report them to the authorities. The project must also appoint a qualified information technology manager.

The Process of Setting up a Company for a Cryptocurrency Business in Hong Kong

Setting up a company in Hong Kong is simple and fast. A basic set of certified documents must be provided, and the minimum share capital is only 1 HKD, which equals less than 0.15 USD. The company is registered after the legal address is registered and a local Hong Kong secretary has been appointed.

The incorporation process takes about 1 business week. Once the company is set up, it can start building to form a cryptocurrency business in Hong Kong.

Taxation for Cryptocurrency Companies in Hong Kong

A cryptocurrency company engaged in virtual assets services in Hong Kong will be liable to pay the corporate income tax on its profits. This tax is 16,5% of the income, with 8,25% applicable to the first 2 million HKD for businesses eligible for the two-tiered system.

Regarding the taxation of profits on holding and selling crypto assets, the applicable rate will depend on the nature of the token and whether it qualifies as a long-term investment or a trade (§46 of Department Interpretation and Practice Note 39 on digital assets). For companies and individuals willing to engage in crypto investing and trading in Hong Kong, it is generally advised to consult with a Hong Kong tax lawyer.

Obligations for Crypto Companies in Hong Kong

Crypto companies in Hong Kong are obliged to comply with the guidelines and the laws enforced by the Securities and Futures Commission. These obligations are often related to the composition of the corporate structure and the importance of having Representative Officers and Licensed Representatives in the organization.

Other compliance obligations to be respected at all times pertain to risk management, cybersecurity assessment, and AML-CFT (including customer due diligence and KYC duties).

The SFC also expected yearly audited accounts and reports, including financial returns and statements. The license must be renewed every year by paying the corresponding fee for the company license, but also for the Representative Officers and Licensed Representatives.

Sanctions for Violating Hong Kong Crypto-Business Obligations

The Hong Kong Securities and Futures Commission has clearly stated, in numerous press releases, webpages and warnings, that it will be very strict on the enforcement of the guidelines.

The SFC is actively hunting companies in Hong Kong providing virtual asset services without proper licensing. It provides a list that is often updated, in order to inform consumers on the risks of being scammed or phished by malevolent organizations. Unregulated activities are strongly prohibited.

On the matter of licensed companies violating Hong Kong crypto business obligations, the SFC has issued Disciplinary Fining Guidelines for regulated entities. This short document states how the SFC will assess the conduct and consequences of the breaching entity before deciding on a sanction.