Hong Kong's Tax Info Exchange Legislation In Effect
by Mary Swire, Lowtax.net, Hong Kong
01 July, 2016
The Inland Revenue (Amendment) (No. 3) Ordinance 2016, which provides a legal framework for Hong Kong to implement the new international standard for automatic exchange of financial account information in tax matters (AEOI), went into effect on June 30.
"The Amendment Ordinance enables Hong Kong to deliver its pledge of support for the new international standard on AEOI as promulgated by the Organisation for Economic Cooperation and Development (OECD)," a government spokesman said.
"Hong Kong has all along been supportive of the international efforts to enhance tax transparency and combat cross-border tax evasion. Timely implementation of AEOI is important for Hong Kong to comply with the international standard and maintain our reputation as an international financial center and a responsible member of the international community," he added.
In September 2014, Hong Kong had told the OECD that it supported the implementation of AEOI on a reciprocal basis with appropriate partners with a view to commencing the first exchanges by the end of 2018, providing that it could put in place necessary domestic legislation by 2017.
Under the AEOI standard, a financial institution (FI) is required to identify financial accounts held by tax residents of reportable jurisdictions, in accordance with OECD due diligence procedures. Hong Kong's FIs are required to collect the reportable information on these accounts and furnish that information to the Inland Revenue Department (IRD). The IRD will exchange the information with the tax authorities of the AEOI partner jurisdictions on an annual basis.
Unless an account holder is a tax resident of another jurisdiction which has signed an AEOI agreement with Hong Kong, FIs in Hong Kong do not need to report the information on such an account to the IRD.
The spokesperson explained that "potential AEOI partners include those who have put in place a relevant legal framework for implementing AEOI which meets the OECD standard, and who have relevant safeguards in their domestic law for protecting the data privacy and confidentiality of information exchanged."
FIs may request account holders to provide self-certifications on their personal information including tax residence, so as to enable FIs to identify those accounts which should be reported under the AEOI regime.
The OECD has established a portal which provides information on tax residency rules in jurisdictions which have committed to implementing AEOI. The IRD will upload onto its website the relevant link to the OECD's portal, as well as a set of frequently asked questions for reference purposes.
Following the passage of the Amendment Ordinance, Hong Kong will start identifying partners from among the 42 economies who have signed agreements with Hong Kong on comprehensive avoidance of double taxation or on tax information exchange.
The Government aims to conclude AEOI negotiations, and include the relevant partners in a new Schedule to the Inland Revenue Ordinance (subject to negative vetting by the Legislative Council), by the end of 2016. FIs could then start conducting due diligence procedures to identify and collect information on relevant financial accounts in 2017, and furnish the information to the IRD in 2018 for transmission to the AEOI partners concerned.
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