Hong Kong to Introduce AEOI Standard, US Companies Need to Review Compliance
Hong Kong announced the new Inland Revenue amendment bill last month. The bill offers a legal framework to set up the Automatic Exchange of Financial Account Information (AEOI) in the country. The law will help in combating money laundering, corruption and terrorism financing. Hong Kong plans to pass this AEOI legislation by June 2016. The law will apply only to partners in which Hong Kong has bilateral agreements.
Once the AEOI agreement is in place, Financial Institutions (FIs) have to put in place the due diligence procedures in order to identify and collect information of the relevant financial accounts in 2017. FIs would have to furnish the information to the IRD in 2018 for transmission to the AEOI partner.
Key points of the bill below:
- Identifying the FIs
Hong Kong will identify all the FIs in the country as proposed by the Organization for Economic Co-operation and Development (OECD) AEOI standards.
- Reporting Standard
All reported information will follow the Common Reporting Standard (CRS). Reportable data includes name, address, jurisdiction of overseas residence, taxpayer identification number, etc. Financial account data covers the account number, account balance, and the gross amount of interest, dividends and sale proceeds of financial assets (where appropriate).
- Due Diligence
AEOI standard will conduct on bilateral terms. Thus, the information flow will happen only with countries with which Hong Kong have signed a double taxation treaty.
Bill has various provisions for penalties to ensure effective implementation of the AEOI standards. Account holders, FIs and service providers maybe liable for offenses ranging from late or incorrect returns to providing false information. IRD will also have the powers to inspect the compliance systems and processes of FIs.
- Electronic Filing
AEOI reporting will be online via the Inland Revenue Department (IRD) system.
Impact on US companies operating in Hong Kong:
Hong Kong and the United States signed an agreement for an exchange of tax information in March 2014. The agreement follows with the US’s Foreign Account Tax Compliance Act (FATCHA). The new AEOI standard will act as a supplement to this bilateral agreement.
Under the law, FIs in Hong Kong would collect financial information of all its account holders who are US taxpayers. FIs will pass this information to the Inland Revenue Department (IRD) of Hong Kong. The IRD will then exchange this information with the US Internal Revenue Service (IRS) on the annual basis.
Few exceptions to AEOI standards include disclosing of any trade, business, or professional secret. Also, anything covered under the legal professional privilege is also exempted.
The information shared in the article gives general information only, and not professional advice. If you need specific details about doing business in Hong Kong or the new AEOI standards, please contact us below or call +1-408-913-9130 to speak to our experts.