Hong Kong Embraces CARF, Korea Delays Tax
Cointime reports: Hong Kong’s Legislative Council passed the Inland Revenue (Amendment) (Crypto-Asset Reporting Framework and Revised Common Reporting Standard) Bill on November 4, setting the stage for automatic exchange of crypto transaction data with partner jurisdictions. The move, alongside Korea’s decision to delay its crypto gains tax to 2029, highlights how cross-border information exchange is becoming the linchpin of effective crypto taxation.
What the CARF Bill Entails
Under the new regime, crypto-asset service providers in Hong Kong must begin collecting client identity and transaction data from January 1, 2027. The Inland Revenue Department aims to start exchanging this information with partner tax authorities from 2028. The CARF, developed by the OECD, covers three main activities:
- Exchanges between fiat currencies and crypto-assets
- Exchanges between different crypto-assets
- Transfers of crypto-assets to other service providers or specific wallet addresses
Service providers will need to gather names, addresses, tax residency status, and taxpayer identification numbers, enabling authorities to reconstruct trading activities rather than just account balances. However, the framework does not indiscriminately monitor all on-chain activity; non-custodial wallets and DeFi protocols fall outside its direct scope.
Korea’s Calculated Delay
On November 5, Korea’s Finance Minister Lee Hyung-il announced plans to postpone the implementation of the crypto gains tax by two more years to 2029—the fourth delay. The original plan would have taxed annual gains above 2.5 million won at 22% (20% income tax plus 2% local tax). The government cited the need to align with cross-border data exchange timelines, particularly with the US, which is expected to start sharing crypto tax data with Korea in 2029. Without complete offshore data, taxing only domestic trades would create unfair advantages for offshore investors.
Implications for Investors
The CARF does not automatically create a tax liability. Transaction records, account balances, and taxable gains are distinct concepts. Authorities will still need to apply local tax laws to determine which income is taxable. Key issues remain: whether crypto-to-crypto swaps constitute taxable disposals, whether losses can be carried forward (Korea plans to study a three-year carryforward), and the primacy of tax residency over platform location.
For Hong Kong residents, the CARF does not introduce a capital gains tax; the city has no separate capital gains tax, and long-term investment gains are generally not subject to profits tax. However, if trading activity constitutes a business, profits may be taxable. The framework enhances information access, not the tax base.
Forward Look
The staggered implementation of CARF across jurisdictions means the global crypto tax landscape will remain fragmented for years. The US-Korea exchange begins in 2029, while Hong Kong starts in 2028. As data flows improve, tax authorities will gain a more complete picture of cross-border activities, but the complexity of calculating gains and applying rules will persist. The era of offshore exchanges as tax havens is ending, but it is not yet over.
