Hong Kong Crypto Firms Warn CARF Tax Rules Could Backfire — How?

Hong Kong’s crypto industry is warning that the city’s planned adoption of new global tax reporting rules could produce unintended consequences if regulators do not adjust how the framework is applied in practice.

The concerns center on the Crypto-Asset Reporting Framework (CARF), a standard developed by the Organisation for Economic Co-operation and Development to enable the automatic cross-border exchange of tax information related to crypto-asset transactions.

Hong Kong officials say the CARF is needed to protect the city’s role as an international financial hub, as OECD peer reviews increasingly judge jurisdictions on how well rules are enforced, not just whether they exist.

Hong Kong Weighs CARF as Industry Seeks Smoother Implementation

In a detailed submission sent this week to the Financial Services and the Treasury Bureau, the Hong Kong Securities & Futures Professionals Association urged authorities to refine how the rules are rolled out.

While the group said it broadly supports the goal of tax transparency, several elements of the proposed regime could expose local crypto firms to operational strain, legal uncertainty, and disproportionate penalties.

The association represents professionals working across securities, futures, and virtual asset markets and framed its comments as an effort to ensure Hong Kong remains competitive as a financial hub while meeting international obligations.

CARF is designed to close gaps left by existing tax reporting systems by capturing crypto-specific activity that falls outside traditional financial accounts.

Under CARF, crypto-asset service providers would be required to collect and report detailed information on users and transactions, which would then be shared automatically with other participating jurisdictions.

🇭🇰 Hong Kong is set to implement the Crypto Asset Reporting Framework by 2026, enhancing tax transparency and tackling cross-border tax evasion in the crypto space!#Crypto #Taxhttps://t.co/MU2Cg6ac0D

— Cryptonews.com (@cryptonews) December 17, 2024

Hong Kong is among 76 markets that have committed to the framework and is part of the first group of 27 jurisdictions expected to begin exchanging data by 2028.

The government plans to complete legislative amendments in 2026, following a public consultation that began late last year.

Progress Welcomed, but Data Rules Raise Red Flags

Industry participants say the direction of travel is clear, but the details matter.

One major concern is data collection, as the association said most firms favor a “wider approach,” collecting information on both reportable and non-reportable clients upfront.

However, it warned that without explicit legal protection, firms could face conflicts with Hong Kong’s personal data privacy rules for holding information on clients who are not yet reportable.

Record-keeping requirements are another pressure point. While the industry accepts a six-year retention period in line with existing tax rules, it raised alarms about proposals that could hold directors or senior officers personally responsible for maintaining records after a company is dissolved.

It argued that former officers may lack the legal authority or infrastructure to securely store sensitive client data once an entity no longer exists.

Firms Push Back on CARF Fines and Tight Reporting Deadlines

Penalties under CARF and the amended CRS also drew scrutiny.

While the industry supports the introduction of administrative penalties as an alternative to criminal prosecution, it warned that fines calculated on a “per account” basis could spiral into massive liabilities for firms hit by technical or software errors affecting thousands of users.

The association called for reasonable caps for unintentional breaches and a graduated approach that distinguishes between administrative mistakes and deliberate non-compliance.

Operationally, firms welcomed plans for electronic filing but said reliance on manual XML uploads could introduce avoidable risks.

Large institutions, in particular, are pushing for direct API connections to allow automated reporting.

They also warned that the proposed five-month filing deadline after year-end could be tight in the early years and suggested grace periods as systems are tested and refined.