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Tax Breaks for Digital Assets and AI Technologies

Hong Kong regulators plan to extend tax breaks to digital assets, including cryptocurrencies. They also aim to incorporate artificial intelligence (AI) technologies within financial sectors. The move seeks to boost investment and enhance the city’s position as a financial hub.

On October 28, Bloomberg reported that Christopher Hui, Hong Kong’s Secretary for Financial Services and the Treasury, announced potential changes to tax legislation. These changes could allow Hong Kong residents holding crypto investments to benefit from tax reductions. Hui stated that the proposal would be submitted as legislation by the end of this year. This initiative aims to strengthen Hong Kong’s role in asset allocation and attract more investors.

The Hong Kong Securities and Futures Commission (SFC) is preparing to release a list of fully licensed crypto exchanges by year-end. Eric Yip, the SFC’s executive director for intermediaries, revealed plans to establish a consultation panel by early 2025. This panel will encourage collaboration with licensed exchanges. Moreover, Hong Kong plans to introduce a regulatory framework for crypto-focused over-the-counter trading desks and custodians.

Virtual Asset Index Series and AI Integration

On October 28, Hong Kong Exchanges and Clearing Limited (HKEX) announced the launch of a Virtual Asset Index Series, set to debut on November 15, 2024. This initiative will provide transparent pricing benchmarks for Bitcoin and Ether in the Asia-Pacific region. Bonnie Y. Chan, HKEX’s Chief Executive Officer, emphasized that offering reliable real-time benchmarks will support informed investment decisions. She believes this step will further strengthen Hong Kong’s global financial standing.

The Hong Kong government is also pushing for broader AI integration. Regulatory bodies have been authorized to develop policies promoting AI’s use in financial institutions and other sectors. Christopher Hui noted that Hong Kong’s financial sector has the necessary resources to support AI adoption. He highlighted the city’s sizable markets and diverse operational scenarios as key factors for successful implementation.

Hong Kong faces challenges in accessing AI services amid a technology rivalry between the U.S. and China. Local access to U.S.-based AI services like OpenAI’s ChatGPT and Google’s Gemini is restricted. Similarly, Chinese AI platforms from firms like Baidu Inc. and ByteDance Ltd. are difficult to access in Hong Kong.

To address this issue, Hong Kong is developing its own AI solutions. The Hong Kong University of Science and Technology is working on InvestLM, a large language model tailored for local market regulations. Once operational, InvestLM will support the city’s financial services sector, fostering innovation and reducing reliance on foreign AI platforms.