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.
Hong Kong’s implementation of AEOI is well underway. Further to the passing of Common Reporting Standards (CRS) set by the Organisation Economic Cooperation and Development (OCED) in the amendment of the Inland Revenue Ordinance, from 2017, Hong Kong signed bilateral competent authority agreements (CAA) with 11 jurisdictions: Belgium, Canada, Guernsey, Japan, Korea, Mexico, the Netherlands, Portugal, South Africa and the United Kingdom. AEOI shall commence in 2018 with the eleven jurisdictions and any tax residencies of the above jurisdictions will be subject to CRS.
CAA is a standardised agreement based on the OCED model and signed between competent tax authorities of each jurisdiction. The agreement ensures the scope of information provided by CRS is exchanged under an existing legal framework, such as existing Comprehensive Double Taxation Agreements (CDTA). It outlines the scope of information exchanged, time and manner of exchange as well as data privacy and confidentiality requirements, specified under the Exchange of Information (EoL) article within CDTA. Although, disclosure and review provisions in HK domestic law for EoL shall not apply in AEOI; account holders will not be notified or subject to review collected information prior to exchange. Instead, financial institutions under existing privacy laws will inform account holders on the possible use of the collected personal data for AEOI.
Pre-existing individual and entity accounts will be identified by the due diligence procedures established by CRS. Individual accounts are divided into high value exceeding HKD 7.8 million and low value; an electronic record search will be applied to high-value accounts which include any registered telephone numbers or any standing orders in another jurisdiction, whilst low-value account may only be subject to a residence address test.
Entities under the threshold of HKD 1.95 million as of 31 December of each reporting year are not be required to be identified or reported, except if an election is made by the financial institution. Regulatory or customer relationship procedures will be used to determine the tax residence of the entity unless publicly available information can be collected. After 1 January 2017, account holders shall be responsible for ascertaining their tax residence, via a self-certification. Though, financial institutions are provisioned with reason to conduct further investigation, if the account information or knowledge held by the relationship manager conflicts with the self-certification.
It is important to note that the complete balance of joint accounts will be attributed to each account holder and allocated thresholds is the aggregate balance of all accounts related to the individual or entity held under a financial institution. Therefore, customer relationship managers shall be responsible for disclosing all accounts within their knowledge. Any financial institution employee failing to comply will be subject to a fine of HKD 10,000 while fraud violations will be liable for imprisonment.
Reportable tax residents are encouraged to ensure all account information is updated and accurate, as well as seek professional tax advice, if necessary. As of April 2017, there are 74 prospective jurisdictions (link to list here). Financial Institutions may extend the scope of reportable accounts in preparation and other tax residents may find themselves subject to AEOI in 2018.
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 email@example.com, and we’ll have a Horizons professional contact you.
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