It is an inevitable trend under the international tax reform that countries will be working together to promote transparency in tax administration. Hong Kong, as a responsible international citizen and a leading financial centre, has recently put in place domestic legislation in relation to Automatic Exchange of Financial Account Information (“AEOI”).
1. What is AEOIs?
AEOI is a new system that involves the transmission of bank account holders’ financial information from Hong Kong to an overseas tax jurisdiction with which Hong Kong has entered into an AEOI agreement (or known as an “AEOI Partner”).
The transmission of the information would involve the following steps:-
What sort of information will be furnished and exchanged?
Whom will the IRD exchange information with?/ Who are our AEOI Partners?
Additional jurisdictions will be added to the list upon signing of the following agreements with Hong Kong:-
2. Which account holders will be reported?
How will the reporting financial institutions identify the accounts held by tax residents of other jurisdictions?
The Inland Revenue (Amendment)(No.3) Ordinance 2016 provides the reporting financial institutions with the legal basis to collect the required information from account holders:-
(1) For accounts opened on or after 1 January 2017
Reporting financial institutions should request a self-certification from the account holder.
(2) For pre-existing accounts
If a reporting financial institution has doubts about the tax residence of an account holder, it can seek a self-certification from the account holder to verify its tax residence.
Will the account holders be sanctioned?
As a self-certification is a formal declaration that the account holder makes in connection with his / her tax residence, if the account holder has doubts about his / her tax residence, professional advice should be sought.
An account holder who knowingly or recklessly provides a statement that is misleading, false or incorrect in a material particular in making a self-certification to a reporting financial institutions is liable on conviction to a fine at level 3 ($10,000).
For a deeper discussion or any enquiry, please contact one of our members of the Tax Advisory team.