Hong Kong crypto assets are no longer hidden! The era of CRS 2.0 full cryptocurrency reporting has arrived

Hong Kong releases the Crypto Asset Reporting Framework (CARF) and revised CRS public consultation, launching “CRS 2.0”. Virtual currency exchanges, brokers, and crypto ATMs are required to report user information to tax authorities. Violations can be fined up to HKD 100,000, and failure to conduct due diligence will be penalized at HKD 1,000 per account. Since implementing CRS in 2018, Hong Kong’s CARF will end the gray area of crypto assets.

What is CARF? The Global Taxation Network for Virtual Currencies

As the crypto asset and virtual currency markets develop rapidly worldwide, the original CRS framework is no longer sufficient to cover all transaction types. Therefore, the OECD officially released CARF in 2023, as a dedicated automatic exchange mechanism for crypto asset transaction information. Under CARF’s system design, jurisdictions will conduct annual automatic exchanges of crypto asset transaction data.

The reporting entities are Crypto-Asset Service Providers (RCASP), including trading platforms, brokers, crypto ATM operators, etc. The data exchange targets are crypto asset users and their tax residence tax authorities. This means that if you are a Hong Kong tax resident holding virtual currencies on a Singapore exchange, the Singapore exchange must report your transaction information to the Hong Kong tax authorities.

In terms of definitions, CARF defines “crypto assets” as digital representations of value verified through cryptographically secured distributed ledgers or similar technology, primarily covering fungible tokens, and potentially some non-fungible tokens (NFTs) under certain conditions. It is important to note that Central Bank Digital Currencies (CBDC) and certain electronic money products (SEMP) are generally outside CARF’s scope and are instead reported through the revised CRS.

This classification logic is: CBDC and SEMP are closer to traditional currencies and bank deposits, thus included in the revised CRS. Decentralized crypto assets like Bitcoin and Ethereum are classified under CARF. This dual-track system ensures that both centralized and decentralized digital assets are integrated into the tax reporting network.

Dual-Track Reporting System of CARF and Revised CRS

Scope of CARF: Decentralized crypto assets (BTC, ETH, stablecoins, etc.), reported by exchanges, wallets, etc., RCASP

Scope of Revised CRS: Central Bank Digital Currencies (CBDC) and specific electronic money products, reported by financial institutions

Reporting entities: Trading platforms, brokers, crypto ATMs, custodians, etc.

Exchange targets: Tax authorities of users’ tax residence jurisdictions, enabling global interconnected tax enforcement

Enhanced Enforcement with Mandatory Registration and Heavy Penalties

Beyond the system content itself, this consultation also responds to administrative and enforcement suggestions raised during the OECD’s second peer review of CRS. The mandatory registration system requires all qualified RCASP and RFI to complete registration on the tax authority’s electronic portal, regardless of whether they ultimately hold reporting accounts, to improve regulatory oversight.

The overall increase in penalty levels includes: for violations such as failing to conduct due diligence or report, fines are proposed based on the number of affected accounts (e.g., HKD 1,000 per account, or HKD 10,000 total, whichever is higher). For providing false information with fraudulent intent, fines can reach HKD 100,000. The consultation proposes establishing administrative sanctions as an alternative enforcement tool to criminal prosecution, to improve overall enforcement efficiency.

This penalty design is progressive. For example, if a platform has 1,000 Hong Kong user accounts but fails to report, the fine could reach HKD 1 million. For large platforms, such fines could accumulate to tens of millions of HKD, creating significant compliance pressure. The maximum fine of HKD 100,000 targets malicious falsification, with criminal liability directly threatening the personal freedom of senior executives.

The End of Crypto Tax Evasion and the New Normal of Compliance

Since 2018, Hong Kong has been conducting annual automatic exchange of financial account information with other tax jurisdictions based on OECD’s CRS. This information is mainly used for tax assessment and to identify and combat cross-border tax evasion. Internationally, CRS is regarded as a core tool of automatic information exchange and a pillar of global tax transparency. Hong Kong has consistently supported and participated in OECD-led international tax cooperation frameworks.

From a systemic perspective, the updates to CARF and CRS are an inevitable trend in international development, representing a structural extension and institutional supplement within Hong Kong’s existing international tax transparency framework. Crypto assets are no longer seen as exceptions outside the traditional financial system but are gradually integrated into the automatic information exchange logic shared with bank accounts and financial assets.

For the market, the real concern is no longer “whether to report,” but: when to report, who reports, what information is reported, and according to what standards. The widespread market attempts to evade CRS reporting by hoping to completely avoid reporting are irresponsible, unprofessional, and have no future. Risking clients’ legitimate assets is incompatible with professional values. Compliance is the only way for the long-term development of crypto assets in Hong Kong.