Analysis of Hong Kong's Crypto Asset Reporting Framework and CRS Revisions

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Long time no see, dear industry partners! Aiying’s team recently conducted an in-depth study of the Hong Kong government’s latest "Public Consultation Document on the Implementation of the Crypto Asset Reporting Framework (CARF) and Revision of the Common Reporting Standards (CRS) released by the Hong Kong government on December 6. This document not only marks an important step forward in Hong Kong’s tax transparency for crypto assets, but also brings a clear compliance direction and urgent preparation tasks for our industry participants. Today, we will interpret the core content and coping strategies of this document from a practical perspective.

1. Why is Hong Kong accelerating the implementation of CARF?

Hong Kong is listed as a “directly related to CARF” jurisdiction by the OECD, mainly due to our thriving crypto asset sector. According to the document, the OECD has explicitly required Hong Kong to implement the CARF framework by 2028 at the latest. As an international financial centre, Hong Kong must meet its international tax transparency obligations while remaining competitive.

Key drivers:

• With the latest development of international tax transparency standards, crypto assets are no longer a regulatory blind spot
• The pressure of OECD peer review is directly related to Hong Kong’s international reputation
• Ensure Hong Kong’s leading position and voice in the global crypto asset regulation

It is worth noting that the Hong Kong government has made it clear in its 2025 policy address that it will submit relevant bills to the Legislative Council in 2026 to ensure that the collection of information required by CARF begins in 2027 and the first information exchange with partner jurisdictions will be held in 2028. This timeline is a full year ahead of the deadline required by the OECD, showing Hong Kong’s positive attitude.

2. Core content and compliance points of the CARF framework

2.1 Who needs to declare? - Definition and scope of RCASP

The document clarifies the definition of a “reporting crypto asset service provider” (RCASP), which is the starting point for CARF compliance. In simple terms, your business is likely to be classified as an RCASP as long as it involves the following activities:

• Perform the exchange of crypto assets with fiat currencies for clients
• Perform exchanges between different crypto assets for customers
• Provide crypto asset trading platform services
• Operate crypto asset ATMs
• Participate in crypto asset trading as a market maker and charge bid-ask spreads

Ai Ying Tips: The mere investment of an investment fund in crypto assets is not considered an “execution transaction” and therefore does not fall under the category of RCASP. However, the fund’s service provider (e.g., custodian, transaction executor) may still be required to fulfill CARF obligations.

2.2 What to declare? - Transaction type and information scope

The transactions required by CARF include three main categories: the exchange of crypto assets for fiat currency, the exchange between crypto assets, and the transfer of crypto assets. The specific information that needs to be collected and declared includes:

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Focus: For retail payment transactions, only single transactions over $50,000 are required to be reported. This threshold provides a certain compliance buffer for some payment applications.

2.3 How to determine the place of declaration obligation? – Declaration related standards

Hong Kong has adopted the OECD’s “declarable linkage” (reporting nexus) standard to determine whether RCASP is required to fulfill its CARF obligations in Hong Kong. This standard is hierarchical:

1. Tax Residency

: RCASP is a tax resident in Hong Kong 2. Place of Registration/Organization

: Registered in Hong Kong or established under the laws of Hong Kong 3. Administrative Location

: Day-to-day management or control in Hong Kong 4. Business premises

: Have a fixed place of business in Hong Kong

For platforms operating internationally, special attention needs to be paid to the “hierarchical rule” - if RCASP has a reporting association in multiple jurisdictions, it only needs to fulfill the reporting obligation in the jurisdiction with the highest association level. For example, if a company is a Hong Kong tax resident and has a branch office in Singapore, it only needs to file in Hong Kong and does not need to file repeatedly in Singapore.

2.4 Due Diligence Procedures and Customer Identification

CARF’s due diligence requirements share similarities with AML/KYC procedures, but they also have their particularities. Core requirements include:

• Obtain the customer’s self-certification(self-certification), including tax residency and TIN
• Verify the reasonableness of self-certification and cross-check with AML/KYC collected documents
• Enhanced due diligence for high-risk clients (e.g. those from CBI/RBI scheme countries).
• Regularly update customer information and obtain new self-certification in a timely manner when there is a change

Practical difficulties: How to deal with the situation of “tax resident conflict”? When a client is considered a tax resident of multiple jurisdictions at the same time under the laws of different jurisdictions, they are required to declare all relevant jurisdictions and cannot select just one. This poses a challenge for both customer communication and system design.

3. Key points of CRS revision and double declaration

In addition to the new CARF framework, the document also deals with the revisions to the CRS. Both frameworks involve cross-border tax information exchange but differ in scope and requirements, requiring special attention to avoid duplicate filings.

3.1 Key changes to the CRS revision

• Digital Asset Inclusion

: SEMP (specific electronic money product) and CBDC (central bank digital currency) are included in the definition of “deposit account” Investment Entity Definition Extension

: Include crypto assets in the category of “qualified investments” of investment entities Enhanced Filing Requirements

: The new declaration content includes the validity of self-certification, the role of the controller, the account type, etc

• New Excluded Accounts

: For example, low-balance digital wallets (90-day rolling average balance does not exceed $10,000)

3.2 Dual reporting and coordination of CARF and CRS

Since the CRS revision also covers some crypto assets, there may be situations where the same transaction needs to be reported under both CARF and CRS. The document proposes two ways to deal with it:

1. Default Processing

: Declaration under both frameworks at the same time (may result in duplication) 2. Optional Processing

: If a piece of information has already been reported under CARF, you can choose not to file it repeatedly under CRS

Ai Ying suggests: The Hong Kong government tends to adopt the default process, which is to require simultaneous declarations. This increases the compliance burden but reduces the risk of underreporting. We recommend that enterprises establish a unified data collection and reporting system to map and integrate the reporting requirements of CARF and CRS to avoid duplicate data entry and inconsistencies.

4. Compliance timetable and implementation path

The document provides a clear implementation timeline based on which companies need to develop their own compliance readiness plan:

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