Hong Kong Exempts Tokenized ETFs from Stamp Duty, Bolstering Digital Asset Hub Ambitions

Executive Summary

The Hong Kong Tax Bureau has confirmed the exemption of stamp duty on the sale or transfer of tokenized ETF shares or units executed on licensed digital asset trading platforms. This regulatory clarity is a pivotal development in Hong Kong's strategy to become a leading Web3 hub, complementing ongoing efforts in digital asset service provider licensing and the impending issuance of HKD stablecoins. This decision lowers transaction costs for tokenized assets, enhancing their appeal for institutional investors and reinforcing the region's commitment to fostering a robust and regulated digital asset ecosystem.

The Event in Detail

The exemption from stamp duty for tokenized ETF shares and units mirrors the existing policy for all exchange-traded funds listed on the Hong Kong Stock Exchange. This policy clarification, outlined within the "Digital Asset Development Policy Declaration 2.0" released on June 26, reinforces Hong Kong's commitment to expanding tokenization schemes across various sectors, including precious metals and renewable energy. By extending this exemption, the government aims to provide regulatory certainty and encourage market participants to explore the benefits of tokenizing ETFs, particularly for secondary market trading on licensed digital asset platforms. This move is designed to integrate digital assets into the traditional financial ecosystem, attracting greater investor and market participant engagement.

Market Implications

The stamp duty exemption significantly lowers the cost basis for trading tokenized ETFs, directly impacting market liquidity and attractiveness. This development is expected to boost institutional interest and adoption of tokenized assets and Real-World Asset (RWA) tokenization in Hong Kong. The proactive regulatory stance, combined with the ongoing development of licensing frameworks and the impending HKD stablecoin launch, positions Hong Kong as a competitive and regulated jurisdiction for digital asset innovation. This regulatory environment may set a precedent for other global financial centers, potentially accelerating the broader corporate adoption of blockchain-based financial instruments and enhancing investor confidence in regulated Web3 offerings. The move signals a clear commitment to fostering a compliant and efficient digital asset market, potentially attracting significant capital flows into the region's burgeoning Web3 sector.

Regulatory Framework and Licensing Progress

Hong Kong is actively advancing its regulatory frameworks for digital assets. The Financial Services and Treasury Bureau (FSTB) and the Securities and Futures Commission (SFC) have jointly published consultation papers to expand the regulatory regime to include dealing in virtual assets and VA custodian services. A "LEAP" framework guides Hong Kong's roadmap to becoming a VA hub. The SFC has introduced a swift licensing process for digital asset trading platform applicants, which was expanded in January 2025 to include all new applicants. This process involves direct communication with senior management and ultimate controllers to reduce licensing times. Key requirements for new licensees include satisfying fit and proper tests, appointing at least two responsible officers, and adhering to the SFC's "same activity, same risks, same regulation" principle, ensuring robust anti-money laundering (AML), know-your-customer (KYC), and business conduct standards. VA custodians will be required to hold client VAs through licensed custodians and perform due diligence on all safekept tokens.

Broader Context: Stablecoin Development

Further solidifying its digital asset strategy, Hong Kong is progressing towards the issuance of HKD stablecoins. The Stablecoin Ordinance is set to take effect on August 1, 2025, with the first stablecoin licenses expected to be issued by early 2026. Under this ordinance, issuers of fiat-backed stablecoins pegged to the Hong Kong dollar must obtain a license from the Hong Kong Monetary Authority (HKMA). Key requirements for stablecoin issuers include being incorporated in Hong Kong or being an authorized institution, maintaining a minimum paid-up share capital of HKD 25 million, and possessing adequate liquid assets. Stablecoins must be fully backed by high-quality, liquid assets, segregated from operational funds, and holders must have the legal right to redeem tokens at face value promptly and without unreasonable fees. This comprehensive approach underscores Hong Kong's ambition to create a well-regulated and innovative environment for digital financial instruments.