Hong Kong Investment Immigration New Regulations: Challenges and Responses of Using Crypto Assets as Proof of Assets

Recently, the Hong Kong Investment Promotion Agency approved a compelling case: an applicant successfully obtained investment immigration qualifications by using Ethereum (ETH) worth 30 million HKD as proof of assets. This is not an isolated case; there was a precedent last October where an application was successfully made using Bitcoin. On the surface, this seems to open a convenient channel for Crypto Assets holders, but in practice, many large holders encountered obstacles at a key stage — the proof of source of funds (SOF). Let's delve into the origins and implications of this issue.

Crypto Assets are Recognized as Proof of Assets Reasons

The "New Capital Investor Immigration Scheme" in Hong Kong requires applicants to prove that they actually own (or jointly hold with their spouse) assets of at least HKD 30 million, including but not limited to stocks, bonds, deposits, and real estate. The core reasons for accepting Crypto Assets as valid assets are twofold:

1. No explicit prohibition on policies: The Hong Kong government adopts an open attitude towards asset types, as long as the accountant can provide a report to verify the authenticity and ownership of these assets, it generally meets the requirements.

2. There are successful precedents: According to industry insiders, as long as the process is compliant, the handling of Crypto Assets is not fundamentally different from that of traditional assets, from Bitcoin to Ethereum.

However, proving asset ownership and demonstrating the legitimacy of the source of funds are two entirely different issues.

Proof of Source of Funds: The Biggest Challenge

There is a common contradiction in the Crypto Assets circle: assets are easy to prove, but their origins are difficult to explain.

• Early participants face historical issues: Many acquired Crypto Assets through mining, over-the-counter trading, or even gifts from friends, making it difficult to provide complete bank statements or transaction records.

• Compliance issues of trading platforms: Some well-known exchanges have encountered operational or regulatory problems, resulting in the historical data of some users being lost or unrecognized.

• The double-edged sword effect of anonymity: Although blockchain transactions are transparent, establishing a direct link between wallet addresses and real identities is difficult, making it challenging for accountants and immigration departments to trace the source of funds.

For example, an investor invested 1 million HKD to purchase Bitcoin in 2017, and its value has now increased to 10 million HKD. However, if the transaction records from back then cannot be traced or if cash transactions were used, proving the legitimacy of these funds has become a tricky issue.

The Dilemmas Faced by Accountants

Hong Kong policies stipulate that asset proof mainly relies on reports from Certified Public Accountants (CPAs), but accountants also face numerous challenges:

1. Valuation standards are not uniform: Crypto assets experience significant price fluctuations; should the valuation be based on the price at the time of application or on an average over a past period? Different accountants may adopt different approaches.

2. Anti-money laundering compliance pressure: If the source of the client's funds is unclear, accountants may face joint liability when issuing reports.

3. High technical requirements: How to verify ownership of a wallet address? How to distinguish between self-owned assets and temporarily borrowed Crypto Assets? These all require professional technical knowledge.

Coping Strategies

For those intending to use Crypto Assets to apply for investment immigration to Hong Kong, the following points are worth considering:

1. Focus on evidence preservation from the very beginning: including transfer records of purchasing Crypto Assets, exchange bills, tax proofs, etc. Even handwritten receipts are better than having no evidence at all.

2. Seek assistance from a professional team: It is crucial to assemble a professional team that includes lawyers, accountants, and immigration consultants, especially those familiar with Crypto Assets and Hong Kong policies, to help design a compliant application path.

3. Gradual standardization: If the source of early funding is unclear, consider gradually bringing the assets into compliance to meet regulatory requirements.

Investment Opportunities from Hong Kong's New Policies

The Hong Kong government's latest "New Capital Investor Entry Scheme" sets the minimum investment threshold at 30 million HKD. Applicants are required to invest at least 27 million HKD in permitted financial assets and non-residential real estate, with an additional 3 million HKD allocated to the "Capital Investor Entry Scheme Investment Portfolio" which specifically supports the development of innovative technology and other key industries.

It is worth noting that the range of permitted investment assets has been expanded. According to the official announcement, the equity of Limited Partnership Funds (LPF) and the open-ended fund companies (OFC) managed by Hong Kong License No. 9 are both recognized as qualified investment assets. This provides investors intending to immigrate to Hong Kong with more diversified investment options.

Overall, while the recognition of Crypto Assets as proof of assets in Hong Kong's investment immigration applications is a positive signal, applicants still need to cautiously address the key challenge of proving the source of funds. With meticulous preparation and the assistance of a professional team, coin holders are expected to successfully complete the immigration application process.