Automatic Exchange of Financial Account Information (AEOI): Hong Kong — An overview

This post is part of Horizons’ ongoing sharing of important information related to the implementation of a new global Standard for Automatic Exchange of Financial Account Information in Tax Matters, more commonly referred to as Automatic Exchange of Information or AEOI.

On 20 June 2016, Hong Kong promulgated the Inland Revenue (Amendment) No.3 Ordinance on Automatic Exchange of Financial Account Information in Tax Matters (AEOI). AEOI is a global standard set by the Organisation of Economic Cooperation and Development in 2014; it involves the automatic transmission of financial account information from one jurisdiction to another, on an annual basis. The OECD standard aims to increase tax transparency and compliance, thus combatting tax evasion. Hong Kong is scheduled to conclude at least one AEOI partner by the end of 2016, enforce OECD Common Reporting Standards (CRS) from 1 January 2017 and complete the first AEOI exchanges by the end of 2018.

The amendment comprises of international CRS regulations to facilitate AEOI exchanges. Primarily, Financial Institutions (FIs), reportable accounts and due diligence procedures for FIs are defined; FIs include banks, custodians, insurance brokers, brokers and investment entities (such as certain collective investment vehicles and pension funds). FIs shall identify both individual and entity accounts of tax residents within AEOI jurisdictions, in order to file an annual AEOI return to Inland Revenue, for transmission to the relevant AEOI partners. The scope of information provided to Inland Revenue includes the following particulars:

  1. Name, address, jurisdiction of residence, tax identification number, date and place of birth (for the individual) of the account holder.
  2. The account number, balance or value and income (e.g. interest, dividends, proceeds from sales or redemption of financial assets) paid to the account during a specified information period.

Passive entities and the controlling persons (beneficial recipients) of the passive entities are also included under the CRS standard. Certain local customisations such as Mandatory Provident Fund Schemes, registered Occupational Retirement Schemes and registered credit unions, as well as dormant accounts with a balance not exceeding HK$7,800 are excluded from AEOI reporting.

Under AEOI, tax treaties serve as the legal framework for AEOI, therefore only accounts of AEOI partners are reportable. Hong Kong will identity AEOI partners from their 42 Comprehensive Double Taxation Agreements (CDTA) and Tax Information Exchange (TIEA) partners, who also meet OECD standards as well as safeguards data privacy and confidentiality of information exchange. The list of reportable jurisdictions will be set out in the newly updated Accounting Standards (Standard 17A) and is subject to updates. Nonetheless, the ordinance provisions FIs to adopt the same due diligence procedures to account holders of any jurisdiction. Since Hong Kong has yet to finalise the list of AEOI partners, casting a wider approach can reduce administration burdens and compliance costs for reporting FIs.

From 1 January 2017, FIs are obliged to begin collecting financial information. New accounts opened on or after 1 January 2017 will require self-certification of tax residency and pre-existing accounts holders’ data can be used to determine tax residency. However, the laws defining tax residency within each AEOI partner are complicated and may be modified by double tax treaties. This means the determination of account holders’ tax status may not be straight forward. Furthermore, AEOI does not provide the option of electing a de minims threshold for individual accounts. Hence, all accounts of the reportable individual are subject to be reviewed with respect to multiple jurisdictions.

With a tightly scheduled timeline combined with a significantly increased volume of collecting and reporting, FIs are advised to place effective information systems and compliance procedures. Failure to compile with new AEOI regime shall result to penalties for both the account holder and FIs including managers and employees. Consequently, it is essential for account holders of tax residents in AEOI jurisdictions and FIs to be familiar with AEOI updates to avoid unnecessary incidents.

Post by Li Huajing, Horizons China contributing writer and editor to The Square. If you would like more information about AEOI or other related issues, send us an email at, and we’ll have a Horizons professional contact you.  

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