Trusted Business Advisor
28 Aug 2017
HONG KONG – Hong Kong’s commitment to carry out the first Automatic Exchange Of Information (“AEOI”) by the end of 2018
In September 2014, the Hong Kong Government indicated its support for implementing AEOI as promulgated by the Organization for Economic Co-operation and Development (OECD) with appropriate participating countries with a view to commencing the first exchange of financial account information by the end of 2018.
The Inland Revenue (Amendment) (No. 3) Ordinance 2016, which came into effect on 30 June 2016, provides a legal framework for Hong Kong to implement AEOI.
Under the laws, Hong Kong will carry out AEOI on a reciprocal basis with partners with which Hong Kong has signed a Comprehensive Avoidance of Double Taxation Agreement (“CDTA”) or Tax Information Exchange Agreement (“TIEA”). These bilateral CDTAs or TIEAs provide the legal basis for Hong Kong to implement AEOI.
In addition, Hong Kong and the relevant CDTA/TIEA partners will need to enter into a Competent Authority Agreement (“CAA”), which sets out the modalities of exchange of information collected pursuant to the AEOI standard.
Under the AEOI standard, a reporting financial institution (“FI”) in Hong Kong is required to identify the financial accounts held by the tax residents of reportable jurisdictions (i.e. tax residents who are liable to tax by reason of residence in the jurisdictions with which Hong Kong has entered into an AEOI arrangement).
On an annual basis, the reporting FIs will need to collect the reportable information of these financial accounts and submit such information to the Hong Kong Inland Revenue Department (“IRD”). The IRD will then transfer the information collected from the reporting FIs to the tax authorities of the relevant AEOI partners.
The Inland Revenue (Amendment) (No. 2) Ordinance 2017 came into effect on 1 July 2017 to expand the list of reportable jurisdictions to cover 75 jurisdictions, which comprises 14 confirmed AEOI partners and 61 prospective AEOI partners.
Under the laws, Hong Kong will only conduct AEOI with a reportable jurisdiction when an arrangement is in place with the reportable jurisdiction concerned to provide the basis for exchange.
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