Hong Kong Investment Immigration New Policy: Opportunities and Challenges of Crypto Assets Proof

Recently, the Hong Kong Investment Promotion Agency approved a remarkable case: an applicant successfully obtained investment immigration qualification by using Ethereum (ETH) valued at 30 million HKD as proof of assets. This is not the first occurrence; 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 have encountered an obstacle in a critical area - Source of Funds (SOF) proof. Let us delve into the reasons behind this phenomenon.

The Rationality of Crypto Assets as Proof of Assets

The "New Capital Investor Immigration Scheme" in Hong Kong requires applicants to prove that they or their spouses jointly own at least 30 million HKD in assets, including but not limited to stocks, bonds, deposits, and real estate. The main reasons why Crypto Assets are accepted as valid assets are twofold:

1. Policies are not explicitly prohibitive: The Hong Kong government maintains an open attitude towards asset types, provided that there is a report from an accountant certifying the authenticity and ownership of these assets, which, in principle, meets the requirements.

2. There are precedents in the market: Industry insiders have reported multiple successful cases using Bitcoin, Ethereum, and other Crypto Assets. As long as the program is compliant, there is no essential difference between Crypto Assets and traditional assets during the application process.

However, proving asset ownership and proving the legality of fund sources are two entirely different challenges.

Proof of Source of Funds: The Biggest Obstacle

There is a common contradiction in the Crypto Assets circle - "assets are clear, but sources are vague". This problem mainly stems from the following aspects:

• Early participants find it difficult to provide complete records: Many people obtained Crypto Assets through mining, over-the-counter transactions, or gifts from friends, lacking formal bank statements or transaction records.

• Issues with trading platforms affect data reliability: Some well-known exchanges have encountered compliance problems, leading to the loss of user historical data or lack of regulatory recognition.

• The anonymity of blockchain brings a double effect: although transaction records are open and transparent, the connection between wallet addresses and actual identities is difficult to establish, increasing the difficulty of tracing funds.

For example, if an investor invested 1 million HKD to purchase Bitcoin in 2017, it is now worth 10 million HKD. But if the transaction record cannot be verified, or if cash transactions were used, how can the legitimacy of this profit be proven? If this issue cannot be resolved, the immigration application is likely to be rejected.

Challenges Faced by Accountants

Hong Kong policies stipulate that asset verification mainly relies on professional reports from Certified Public Accountants (CPA). However, accountants also face numerous difficulties when dealing with Crypto Assets:

1. Valuation standards vary: The prices of Crypto Assets are highly volatile. Should the price at the time of application be used as the standard, or should the average value over a past period be adopted? Different accountants may take different approaches.

2. The responsibility for anti-money laundering is significant: if the source of the client's funds is unclear, the accountant may face joint liability for issuing a report.

3. High technical requirements: Verifying wallet address ownership, distinguishing between self-owned assets and temporarily borrowed assets, etc., all require professional blockchain knowledge.

Coping Strategies

For those who wish to apply for Hong Kong investment immigration using Crypto Assets, the following suggestions can be considered:

1. Complete records are crucial: Keep all relevant evidence of every Crypto Assets transaction from the beginning, including transfer records, exchange bills, tax documents, and even handwritten receipts are better than having no records at all.

2. Seek assistance from a professional team: Assemble a professional team that includes lawyers, accountants, and immigration consultants, particularly those familiar with Crypto Assets and Hong Kong policies, to help design a compliant application pathway.

3. Gradual standardization: If the early sources of funding are unclear, consider converting the assets in batches into forms that are easier to prove the source.

It is worth noting that Hong Kong's new Capital Investor Immigration Scheme has set a minimum investment threshold of HK$30 million. Applicants are required to invest at least HK$27 million in authorized financial assets and non-residential real estate, with an additional HK$3 million allocated to specific investment portfolios to support the development of key industries such as innovative technology.

In addition, the policy also recognizes the equity of Limited Partnership Funds (LPF) and Open-Ended Fund Companies (OFC) managed by Hong Kong License No. 9 as qualified investment assets, providing investors with more choices.

Overall, Crypto Assets as proof of assets for investment immigration in Hong Kong open up new possibilities for coin holders, but still face considerable challenges in practice. Applicants need to plan carefully and be well-prepared to increase the chances of a successful application.