HONG KONG SAR, CHINA Law and Practice Contributed by: Pang Lee, Joyce Wang, Mark Liang and Francis Li, Cooley
new climate-related reporting requirements based on the International Sustainability Standards Board IFRS S2 standards. Starting 1 January 2026, all large- cap listed issuers are subject to mandatory disclo- sure requirements regarding climate-related risks and opportunities affecting their business models. Crucially, all listed issuers are required to disclose their Scope 1 and Scope 2 greenhouse gas emissions on a mandatory basis for financial years commencing on or after 1 January 2025. For publicly listed digital asset firms, or traditional financial institutions with sig- nificant proprietary digital asset mining or transaction validation operations, these rules necessitate rigor- ous reporting on the environmental impact and energy consumption profiles of the specific blockchain con- sensus mechanisms (such as proof of work) utilised by the assets they hold or process. Additionally, SFC-authorised investment funds with a stated ESG focus that maintain exposure to VAs must strictly comply with the SFC’s 22 December 2023 “Circular on SFC-authorised funds with expo- sure to virtual assets” (updated 7 April 2025). These funds are required to demonstrate precisely how the incorporation of digital assets aligns with their stated sustainability criteria and are subject to continuous periodic reporting obligations to rigorously prevent greenwashing within the asset management sector. 1.2.4 Tax The tax regime in Hong Kong is undergoing a histor- ic, structural update to comprehensively address the proliferation of digital assets. Historically, the Inland Revenue Department (IRD) has relied on the territorial tax principle outlined in Departmental Interpretation and Practice Notes No 39 (DIPN 39), issued 27 March 2020. This framework determines taxation based on the “badges of trade”, assessing whether the assets are held for long-term investment (generating capital gains, which are generally non-taxable in Hong Kong) or active trading (subjecting the gains to profits tax). However, the most significant update is the imple- mentation of the OECD’s CARF alongside sweeping amendments to the Common Reporting Standard (CRS 2.0). Following a public consultation (launched by Consultation Paper on the Implementation of the
Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard in Hong Kong, December 2025) that concluded in February 2026, the government is completing the necessary legislative amendments to the Inland Revenue Ordinance (Chap- ter 112) within the 2026 calendar year. This framework compels reporting crypto-asset ser- vice providers, including brokers, exchanges and operators of crypto automated teller machines (ATMs), to conduct rigorous due diligence, register on the central CARF Portal, and execute transaction-level reporting on the exchanges and transfers of covered crypto-assets. The rules will become active for data collection starting 1 January 2027, with the IRD com- mencing international information exchanges in 2028. The most significant tax uncertainties currently revolve around the granular application of the new CARF rules to highly complex, decentralised protocols, and the tax treatment of novel tokenomics structures such as staking yields, airdrops and decentralised finance (DeFi) liquidity mining, which are not explicitly detailed in legacy guidance like DIPN 39. Concurrently, the 2026–27 Budget introduced proposals to formally expand the scope of tax concessions for investment funds and family offices to classify digital assets as qualifying investments, a strategic move aimed at attracting sophisticated wealth management capital Hong Kong approaches the winding-up and insolven- cy of blockchain-based businesses through a sophis- ticated combination of traditional corporate insolven- cy law and highly specialised resolution regimes for entities posing macroeconomic risks. Under the gen- eral framework provided by the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32), crypto-asset firms are liquidated similarly to regu- lar corporations. Following the binding precedent set in Re Gatecoin Limited , customer VAs held on trust by an exchange do not form part of the general estate available to unsecured creditors, provided the terms of service explicitly establish a valid, legally recognis- able trust structure. However, if the assets are com- mingled or the terms grant the exchange ownership in its own right, users are relegated to the status of to the jurisdiction. 1.2.5 Insolvency
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