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Crypto tax question

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  1. #1

    Crypto tax question

    Hi All,

    I have been buying some cryptos like BNB, SOL and ETH on Binance based here in HK. Binance provides a decent return on Binance Earn or locked staking. I do this investment as an individual and not as a trade/ business. Would you please guide on whether the 6 - 8% annual yields that are generated here are taxable for me in HK?

    Would it make sense to reach out to IRD to confirm?

    thanks


  2. #2

    Join Date
    Dec 2011
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    Sai Kung
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    1) Capital gain is not taxable in HK so if you make a profit on sale of crypto coins, no tax payable on the gains.

    2) For yields - If you're not cashing it, you might just be able to avoid taxes as it's all virtual. If you use the yield to buy/pay for other things (in coins), that could have some exposure. If and when you cash it, you'd need to declare the income as "other sources" or some other heading as the IRD may update the tax return form, and pay taxes.

    This is what I would do (for HK). Different story in other jurisdictions. Crypto is evolving and laws are playing catch up. Some countries are adjusting faster than others.


  3. #3

    Join Date
    Mar 2007
    Posts
    633

    Not exactly correct.

    If you trade regularly, it is no longer capital gains but trading gains.

    As OP has mentioned, he is investing as an individual and not as a trade / business. The closest analogy would be Hong Kong's favorite past time - share trading.

    It appears that there is an unwritten rule / concession that the IRD does not go after the regular joe trading in shares, though they also do not get to use their trading losses. The IRD's view that even if you are regularly trading (some quite sophisticated), you are not actually running a share trading business, hence not taxable under profits tax. I would adopt the same basis with regards to crypto.

    However, if you do the same activity using a company, then yes, it should be taxable as it now forms part of a trade.

    riversidejr likes this.

  4. #4

    Thanks muzzdang, I am quite clear that capital gains on crypto are not taxable. My Q was more around staking income generated on the crypto?

    muzzdang likes this.

  5. #5

    Join Date
    May 2009
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    There is no Dividend Tax and there is also no Tax on Interest income in HK so the yield you receive from your Crypto gambling should not be taxed and I would't even mention it on your tax form.

    shri likes this.

  6. #6

    Join Date
    Mar 2007
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    Well this is unclear.

    Are staking rewards, dividend, interest, a fee or a share of profits?

    If you deposit USDT stablecoin and you get 8% APY, is that interest? As it is not coming from a bank, I would argue it is not interest

    If you stake USDC in a liquidity pool to earn a share of the trading fees, that is more likely a fee / share of profits, rather than dividends

    This gets more complicated if you get a high APY but the underlying asset depreciates in value, so do you also get a deduction on the loss?

    But for individual purposes, I would treat all these gains as non-taxable as these are not part of a business or trade

    bigbeluga likes this.

  7. #7

    Join Date
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    Quote Originally Posted by muzzdang:
    Well this is unclear.

    Are staking rewards, dividend, interest, a fee or a share of profits?

    If you deposit USDT stablecoin and you get 8% APY, is that interest? As it is not coming from a bank, I would argue it is not interest

    If you stake USDC in a liquidity pool to earn a share of the trading fees, that is more likely a fee / share of profits, rather than dividends

    This gets more complicated if you get a high APY but the underlying asset depreciates in value, so do you also get a deduction on the loss?

    But for individual purposes, I would treat all these gains as non-taxable as these are not part of a business or trade
    I would definitely consider it interest. Interest doesn't have to come from a bank (think about Bonds or personal loans) all the same from a tax perspective. Unless you have a business in trading there is just no income tax on income from trading.
    bdw likes this.

  8. #8

    Join Date
    Feb 2009
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    8,280
    Quote Originally Posted by muzzdang:
    Well this is unclear.

    Are staking rewards, dividend, interest, a fee or a share of profits?

    If you deposit USDT stablecoin and you get 8% APY, is that interest? As it is not coming from a bank, I would argue it is not interest

    If you stake USDC in a liquidity pool to earn a share of the trading fees, that is more likely a fee / share of profits, rather than dividends

    This gets more complicated if you get a high APY but the underlying asset depreciates in value, so do you also get a deduction on the loss?

    But for individual purposes, I would treat all these gains as non-taxable as these are not part of a business or trade
    In Hong Kong, there is only salaries tax (if you have a job) and property tax (if you own a property and rent it out). Look at IRD form BIR60, these are the 2 sections where you can input these forms of income. There is nowhere to input any other forms of income such as dividends received, bank interest received, or anything else including crypto income because HK simply doesnt tax any of there things.

    There is one other section on the BIR60 tax return form, PROFITS TAX. But the first question "Did you have any sole proprietorship business during the year", to which you would normally answer "NO" and then skip the rest of this section.
    Sith and LoganH like this.