The Hong Kong Bitcoin Spot ETF is here. How can retail investors participate? Understand the investment threshold and tax costs in one article.

Question

After the US approved the Spot Bitcoin ETF, Hong Kong couldn't sit still. According to the latest news, the Hong Kong Securities and Futures Commission is expediting the approval process for the first Hong Kong Spot Bitcoin ETF, which is expected to be listed on the Hong Kong Stock Exchange after the Spring Festival. However, there are several questions to clarify before buying: Who can buy? How to pay taxes? What are the differences compared to the futures ETF?

Investment Conditions: The Threshold is Not as High as You Think

The good news is that the Hong Kong Spot Bitcoin ETF is not considered a direct purchase of virtual currency and is classified as a fund product under regulation. Therefore, as long as it is legally licensed and listed on the Hong Kong Stock Exchange, Hong Kong residents can purchase it through legitimate channels without the need for an additional cryptocurrency trading license.

But there is a restriction: sales to mainland investors are prohibited. This means that mainland residents cannot buy even if they want to, unless they obtain all necessary government approvals in advance.

The current entry threshold for futures ETFs ranges from 50 to 100 fund units, which should be roughly the same when converted to Spot ETFs. Compared to directly buying coins, this method has a much lower threshold.

The issuer also has requirements

Want to issue a Bitcoin ETF? The conditions set by the Hong Kong Securities and Futures Commission are quite a few:

The management company must obtain the upgraded version of license No. 9, and at least one employee must have experience in virtual asset management.
Asset custody must be handled by an organization recognized by the Hong Kong Securities and Futures Commission, and private keys must be stored in Hong Kong, with most funds kept in cold wallets.
Futures cannot be used for leverage, investment strategies must be proactive and flexible, and the rollover costs are controllable.
Cannot engage in high risk, must value based on Spot data from major trading platforms.
Investor education is essential, and risk disclosure must be detailed.

In simple terms, the Hong Kong Securities and Futures Commission ensures that this thing is both safe and transparent.

Tax Treatment: Hong Kong vs Singapore

This is the most practical question - do you have to pay taxes on the money you earn?

In Hong Kong: The good news for individual investors is that capital gains and dividend distributions are generally not subject to tax. But there is a prerequisite - you have to be a genuine investor, not engaging in frequent trading. If deemed to be trading in nature (holding period too short), you may be subject to capital gains tax.

The company legal person is not so lucky, as the profits tax for the first 2 million HKD is 8.25%, and the excess is 16.5%. Sole proprietorship or partnership businesses are 7.5% and 15%, respectively.

In Singapore: The situation is a bit complicated. Individuals in Singapore are not taxed on income sourced from overseas, but there is a hidden rule — as long as the money is remitted back to Singapore, it is considered to have generated Singapore-sourced income, and personal income tax must be paid (0-24%, depending on income level).

Singaporean companies have exemption conditions for overseas dividends, but must meet the following: the corporate tax rate of the other country is at least 15%, and the income has been taxed overseas. Hong Kong companies do not withhold tax on dividends paid to non-residents, so Singaporean investors find it easier in this regard.

Spot ETF vs Futures ETF

As of now, there are only three futures products listed on the Hong Kong Stock Exchange:

Southern Dongying Bitcoin Futures ETF (AUM $30.8 million)
Southern Eastern England Ethereum Futures ETF (AUM $12.09 million)
Samsung Bitcoin Futures ETF (AUM 10.14 million)

The management fees for these three existing products are all between 0.89% and 1.99%, and their scales are not large. When the Spot ETF arrives, it is expected to attract a lot of capital inflow, as the spot price aligns with the actual price, making it more intuitive and more in line with traditional investors' habits.

Latest Developments

On January 26, 2024, Harvest Fund Hong Kong became the first institution to submit a Spot Bitcoin ETF application. The Hong Kong Securities and Futures Commission stated that it would expedite the approval process, and the first batch of products is expected to be launched after the Spring Festival. The market anticipates that the Hong Kong Securities and Futures Commission will follow the U.S. practices and approve multiple applications at once.

From futures to spot, this marks the absorption of virtual assets into traditional financial markets. For retail investors, it means that investing in Bitcoin is more standardized, more convenient, and risk management is also better secured.

Key Point: After the Spring Festival, the Hong Kong Stock Exchange is waiting.