Tax Advisory

Is your personal data at stake because of the increased transparency in tax administration through Automatic Exchange of Information (“AEOI”)?

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?

• Name, address, jurisdiction of resident, tax identification no., the date and place of birth (in case of individuals)
• Account number
• Account balance or value as at the end of the specified information period or other appropriate reporting period
• Interest income, dividend income, other income generated from the financial assets, gross proceeds from the sale or redemption of financial assets

Whom will the IRD exchange information with?/ Who are our AEOI Partners?

• From 2018 onwards: Japan, United Kingdom for information of the preceding year
• From 2019 onwards: Korea
• Timeframe to be determined (legislation in progress): Belgium, Canada, Guernsey, Italy, Mexico, Netherlands

Additional jurisdictions will be added to the list upon signing of the following agreements with Hong Kong:-

• A comprehensive avoidance of double taxation agreement (“CDTA”) or tax information exchange agreement (“TIEA”); and
• A competent authority agreement (“CAA”)

2. Which account holders will be reported?

• Account holders (both individuals and entities) who are subject to taxation as a resident in other jurisdictions.
• Hong Kong taxpayers who are not tax residents of any territory outside Hong Kong will not 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.