New International Standards for Automatic Exchange of Financial Information
In a joint effort against tax evasion, the Hong Kong government and the Organization for Economic Development and Cooperation (OECD) implemented Common Reporting Standards (CRS) for Foreign Invested Firms (FIEs) in the scope of aligning Hong Kong with the global standards for Automatic Exchange of Financial Information (AEOI). Legislative proposals for implementing those new standards were expressed by the Hong Kong authorities after a public consultation process of FIEs between April and June 2015. According to the Hong Kong government, the legislation will be effective in 2017. Here are the key measures that were retained by the Hong Kong government.
In order to comply with the AEOI standards and to ease the process for FIEs, the Hong Kong government will keep reportable information to the strict minimum.
IT systems will be designed to facilitate the implementation of AEOI requirements for stakeholders. The Hong Kong government aims to introduce the AEOI legislation in the Legislative Council in early 2016 meaning that due diligence procedures will take place in 2017 for FIEs and the first AEOI before the end of 2018.
The following changes will be implemented in regards with the definition of FIEs, non-reporting FIEs and excluded account:
- Low risk funds will exempted of reporting;
- Mandatory Provident Fund Schemes, Occupational Retirement Schemes and Credit Unions will be considered as non-reporting FIEs;
- Dormant accounts with a lower balance than HK$ 7,800 won’t be subject to reporting;
- Some trust companies, including private trusts holding non-financial assets, will be exempted of reporting.
Confidentiality will be ensured under those new standards for protection of the information exchange. FIEs will have to inform account holders of the possible use of the information they collect for AEOI purposes. Non-compliant FIEs employees will be sanctioned accordingly to the new standards.
Despite the OECD’s recommendations, the Hong Kong government will implement a “targeted” approach instead of a “wider” approach of due diligence procedures. FIEs will therefore identify and collect information of account holders with a residence corresponding to reportable jurisdictions instead of all account holders resident in Hong Kong or not. In order to enhance flexibility, FIEs will be allowed to undertake a “wider” approach: reportable information will only be subject to reporting to the Hong Kong Inland Revenue Department.
The government will make appropriate adjustments for some requirements in order to ensure certainty for FIEs and to build a collaborative and trustworthy business environment. These new standards embody Hong Kong’s will to adapt to global standards.