Automatic Exchange of Financial Account Information

1. What is AEOI?

AEOI involves the transmission of financial account information from Hong Kong to an overseas tax jurisdiction with which Hong Kong has an AEOI arrangement (or known as an “AEOI partner”). The information relates only to the tax residents of the jurisdiction of the AEOI partner (“reportable jurisdiction”). 

2. Why does Hong Kong have to implement AEOI?

Exchanging financial account information on an automatic basis is a new international standard, designed to enhance tax transparency and combat cross-border tax evasion. Members of the international community have been advocating AEOI as a more efficient mode of international tax cooperation and have made it a new global standard. The Organization for Economic Cooperation and Development (“OECD”) released in July 2014 the Standard for Automatic Exchange of Financial Account Information in Tax Matters, calling on governments of all jurisdictions to obtain relevant financial account information from their financial institutions and exchange that information automatically with jurisdictions of residence of account holders, and where relevant, controlling persons on an annual basis. For the meaning of “controlling persons”, please refer to the definition of “controlling person” under Section 50A(1) of the Inland Revenue Ordinance (Cap. 112) (“IRO”). 

As a responsible international citizen and a leading financial center, Hong Kong indicated in September 2014 our commitment to implement AEOI and commence the first information exchanges by the end of 2018. To deliver the commitment, Hong Kong commenced the first exchanges in September 2018. 

The Inland Revenue (Amendment) (No. 3) Ordinance 2016, which commenced operation on 30 June 2016, has put in place a legislative framework for Hong Kong to implement AEOI. Subsequently, further amendments were made to the AEOI legal framework under the Inland Revenue (Amendment) (No. 2) Ordinance 2017, the Inland Revenue (Amendment) Ordinance 2018 and the Inland Revenue (Amendment) (No. 2) Ordinance 2019. The above Amendment Ordinances are collectively referred to as “the AEOI legislation”. 

In particular, the Inland Revenue (Amendment) (No. 2) Ordinance 2019 removed Mandatory Provident Fund Schemes registered under the Mandatory Provident Fund Schemes Ordinance (Cap. 485) (“MPF schemes”) and Occupational Retirement Schemes registered under the Occupational Retirement Schemes Ordinance (Cap.426) (“ORSO registered schemes”) from the list of non-reporting financial institutions (thereby rendering such schemes reporting financial institutions with regard to AEOI); and increased the number of reportable jurisdictions from the current 75 to 126 with effect from 1 January 2020. 

3. Who will be the reportable persons for AEOI?

A financial institution resident or with a branch located in Hong Kong is required to identify the financial accounts held by individuals or entities liable to tax by reason of residence in the reportable jurisdictions. The financial institution will collect and furnish to the Inland Revenue Department (“IRD”) information of the identified account holders, and where relevant, controlling persons and the financial account information on an annual basis. IRD will then transmit the information to the tax administration of the relevant jurisdiction of which the account holder or controlling person is tax resident. 

Updated list of reportable jurisdictions could be found in the website of IRD: https://www.ird.gov.hk/eng/tax/aeoi/rpt_jur.htm 

4. When will AEOI be applied to MPF schemes and ORSO registered schemes (collectively “Retirement Schemes”)?

 According to the Inland Revenue (Amendment) (No. 2) Ordinance 2019, MPF schemes and ORSO registered schemes will become reporting financial institutions (“Reporting FIs”) with effect from 1 January 2020. Starting from that date, Retirement Schemes are required to comply with the due diligence and reporting obligations relating to AEOI. If members and/or employers of the Retirement Schemes concerned are tax residents of the reportable jurisdictions, such Retirement Schemes will need to report in 2021 for the first time to the IRD the financial account information of the relevant persons, covering the year 2020, for transmission to the relevant tax authorities. 

5. How will MPF/ORSO registered scheme account holders be affected by AEOI? What are the implications to employers? 

MPF schemes and ORSO registered schemes will be Reporting FIs effective from 1 January 2020. Under the AEOI legislation, these Reporting FIs (i.e. MPF schemes and ORSO registered schemes) will be liable for reporting on account holders (members and employers inclusive) who are tax residents of any reportable jurisdiction outside Hong Kong. For identification of the tax residency status of each new account holder, Reporting FI is required to collect a self-certification of the account holder for verification of his/her tax residency status and to keep it for a period of six years (beginning on the date on which the return is furnished) in accordance with the requirement of the IRO. 

Employers should take all practical steps to request new employees to complete, sign and submit the self-certification forms properly and promptly when enrolling these new employees into MPF schemes and ORSO registered schemes. Otherwise, account opening process will be adversely affected and could not be completed. 

6. I am a Hong Kong permanent resident and do not hold any foreign passports and only have tax liability in Hong Kong, how will I be affected? 

Please refer to the answers to Questions 9 and 16. 

7. What is a self-certification? 

This is a formal declaration that the account holder provides in connection with his/her tax residence under the AEOI regime. 

According to the due diligence procedures set out in the AEOI legislation (which are based on the international standard required), self-certification would be required from account holders (members and/or employers) for all new MPF/ORSO registered scheme accounts (i.e. accounts opened on or after 1 January 2020). As for pre-existing MPF/ORSO registered scheme accounts (i.e. accounts that are in existence as at 31 December 2019), if a Reporting FI has doubt about the tax residence of an account holder, it should also obtain a self-certification from such account holder to establish his/her tax residence. 

a. For individual account 

Information that MPF/ORSO registered scheme individual account holders required to provide includes basic identification information (e.g. name, HKID or passport number, residence address, mailing address (if different from residence address), date of birth, jurisdiction of residence and taxpayer identification number (“TIN”) with respect to each jurisdiction). If an MPF/ORSO account is held by an individual as a sole-proprietor of a business, the account is to be treated as an individual account. 

If the account holder has doubt about his/her tax residence, he/she may consider seeking professional advice. 

b. For entity account 

Information that MPF/ORSO registered scheme entity account holders required to provide includes legal name, jurisdiction of incorporation or organization, Hong Kong business registration number, business address, mailing address (if different from business address) , jurisdiction of residence and TIN. If an MPF/ORSO account is held by an individual as a partner in a partnership, the account is to be treated as an entity account, NOT as an individual account. 

Each controlling person of the entity is also required to provide self-certification if the entity account holder is a passive non-financial entity (“NFE”). Required Information from the controlling person includes name of the controlling person, HKID or passport number, residence address, mailing address (if different from residence address), date of birth, jurisdiction of residence and TIN, name of the entity account under the control of the controlling person, and type of controlling person. 

In OECD’s AEOI portal, you can find more information regarding the tax laws of different jurisdictions for defining tax residence. The website address is:

https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-residency/ 

For the details on what entity account holder would amount to a passive NFE, please refer to the definition of “passive NFE” under Section 50A(1) of the IRO. 

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 FI is an offence. IRD may check the details of the self-certification, if necessary. 

8. Why am I asked to provide my tax residency in the self-certification? 

Under the AEOI legislation, the Reporting FIs are required to apply due diligence procedures to identify the tax residency of MPF/ORSO registered scheme account holders (members and/or employers) and controlling persons for the purpose of AEOI. Therefore an MPF/ORSO registered scheme account holder is required to provide his/her tax residency to the Reporting FI. Otherwise, the account opening process will be adversely affected and could not be completed. 

9. I am a Hong Kong permanent resident and do not hold any foreign passports and only have tax liability in Hong Kong. Do I need to provide a self-certification to the Reporting FI when opening a new MPF/ORSO registered scheme account? Do I need to provide a self-certification to the Reporting FI for my pre-existing MPF/ORSO registered scheme accounts? 

According to the due diligence procedures set out in the AEOI legislation, which are based on the international standard, with effect from 1 January 2020, all new MPF/ORSO registered scheme account holders have to provide self-certifications to the Reporting FI in respect of their personal information, including tax residence. For pre-existing MPF/ORSO registered scheme accounts, the Reporting FI will be required to conduct due diligence procedures to determine if an account holder is a reportable person. In case of doubt, self-certification from the account holders will be obtained to establish their tax residences. 

Furthermore, Reporting FIs can opt to apply due diligence procedures of new MPF/ORSO registered scheme accounts to pre-existing MPF/ORSO registered scheme accounts. In other words, an account holder may have to provide a self-certification to the Reporting FI regarding a pre-existing MPF/ORSO registered scheme account. 

10. Does a company in Hong Kong need to provide a self-certification to the Reporting FI when opening a new MPF/ORSO registered scheme account? Does a pre-existing MPF/ORSO registered scheme entity account holder in Hong Kong need to provide a self-certification to the Reporting FI? 

According to the due diligence procedures set out in the AEOI legislation, which are based on the international standard, with effect from 1 January 2020, all new MPF/ORSO registered scheme entity account holders have to provide self-certifications to the Reporting FI in respect of the company information, including its legal name, jurisdiction of incorporation or organization, Hong Kong business registration number, business address, mailing address (if different from business address), jurisdiction of residence and TIN. Each controlling person of the entity is also required to provide self-certification if the entity account holder is a passive NFE. 

For pre-existing MPF/ORSO registered scheme entity accounts, the Reporting FI will be required to conduct due diligence procedures to determine if an account holder is a reportable person. In case of doubt, self-certification from the account holders will be obtained to establish their tax residences. 

Furthermore, Reporting FIs can opt to apply due diligence procedures of new MPF/ORSO registered scheme entity accounts to pre-existing MPF/ORSO registered scheme entity accounts. In other words, an account holder may have to provide a self-certification to the Reporting FI regarding a pre-existing MPF/ORSO registered scheme entity account. 

11. What if there are changes in circumstances that affect my tax residency? 

MPF/ORSO registered scheme account holders should inform the Reporting FI of any change in circumstances which affects their tax residency status or causes the information contained in a self-certification to become incorrect. Generally, account holders should provide the Reporting FI with a suitably updated self-certification form within 30 days of such change in circumstances. 

12. How will I know whether or not I am a tax resident of an overseas jurisdiction? 

In general, whether or not an individual or entity is a tax resident of a jurisdiction is determined by having regard to the person’s physical presence or stay in a place (say, whether over 180 days within a tax year (such as in Hong Kong, the tax year is from 1 April of the year to 31 March of the following year)) or in the case of a company, the place of incorporation or where the central management and control of the company lies. That a person has paid taxes charged by a jurisdiction (say, value-added tax, withholding tax or capital gains tax) does not automatically render that person a tax residence of that jurisdiction. 

In OECD’s AEOI portal, you can find more information regarding the tax laws of different jurisdictions for defining tax residence. The website address is:

https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-residency/ 

If the MPF/ORSO registered scheme account holder has doubts about his/her tax residence, he/she may consider seeking professional advice. 

13. Will the IRO specify who are tax residents of an overseas jurisdiction? How can a Reporting FI know and identify tax residence of their MPF/ORSO registered scheme account holders? 

Each jurisdiction has its specific definition of tax residence. Tax laws may differ amongst jurisdictions and the tax residence of an individual MPF/ORSO registered scheme account holder (member and/or employer) may change from one year to another. Account holders ought to verify and update their tax residence and seek legal advice if necessary. 

For new MPF/ORSO registered scheme accounts, Reporting FIs will seek self-certification from account holders (members and/or employers) in respect of their personal information, including tax residence. For pre-existing MPF/ORSO registered scheme accounts, the Reporting FI will be required to conduct due diligence procedures to determine if a MPF/ORSO an account holder is a reportable person. In case of doubt, self-certification from the account holders will be obtained to establish their tax residences. 

14. What happens if I do not provide the required AEOI-related information or documents to the Reporting FI? 

The AEOI legislation imposes a legal obligation on Reporting FIs to obtain a self-certification in respect of new accounts. If a new employee/employer/controlling person does not provide the self-certification as required, the MPF/ORSO registered scheme account opening process will be adversely affected and could not be completed. 

For a pre-existing MPF/ORSO registered scheme account holder that does not provide self-certification and/or other supporting documents when being requested, as prescribed by the AEOI legislation, the Reporting FI will need to determine the member’s tax residency based on the information currently on record, and if this is in a reportable jurisdiction, the Reporting FI will need to report the relevant account information to the IRD. The IRD will in due course, perform information exchange with such reportable jurisdiction that has activated AEOI exchange relationship with Hong Kong. 

15. Can I check my tax residency status held with the Reporting FI, and how? 

In accordance with the Personal Data (Privacy) Ordinance (“PDPO”), MPF/ORSO registered scheme account holders have the right to request access to their personal data. 

The account holders can make use of customers servicing channels of the Reporting FI to check and/or update their tax residency status as needed. 

16. I am a Hong Kong permanent resident and do not hold any foreign passports and only have tax liability in Hong Kong. Will my MPF/ORSO registered scheme account information be reported to other jurisdictions under the AEOI regime? 

If you are not a tax resident in any jurisdiction outside Hong Kong, the Reporting FI is not required to report your MPF/ORSO registered scheme account information to IRD for transmission to any tax administration outside Hong Kong. 

17. If a company which is registered in Hong Kong and only has tax liability in Hong Kong, will the MPF/ORSO registered scheme entity account information of the company be reported to other jurisdictions under the AEOI regime? 

If a company is not a tax resident in any jurisdiction outside Hong Kong, the Reporting FI is not required to report the MPF/ ORSO registered scheme entity account information of the company to IRD for transmission to any tax administration outside Hong Kong. 

18. If I am a tax resident of an reportable jurisdiction and hold an MPF/ORSO registered scheme account with a Reporting FI in Hong Kong, what information about me will be exchanged? 

As far as personal data is concerned, the information to be exchanged includes name, address, jurisdiction of residence, TIN, and date of birth. As for MPF/ORSO registered scheme account data, it includes the account number (or a unique identifying number), account balance or value (year-end) for the year concerned, and the gross amount paid or credited to the account holder in respect of the account during the relevant period, including the aggregate amount of any redemption payments made to the account holder during that period. 

19. As for the non-vested benefits in my MPF/ORSO registered scheme account, how does the Reporting FI calculate for the purpose of AEOI/CRS reporting? 

In respect of MPF schemes, an employer is able to make voluntary contributions for an employee member in addition to mandatory contributions. Upon a member ceasing employment prior to his/her normal retirement date other than due to specified conditions under the MPF legislation, only the appropriate vested proportion of the employer’s voluntary balance shall be paid to the member. 

For ORSO registered schemes, the member’s benefits may be subject to a vesting scale. The vesting scale may specify the percentage of the vested benefits derived from employer’s contributions that the member is entitled to based on the number of years of service/participation. 

In respect of the portion of benefit not yet vested to a member, if for regulatory and customer reporting purposes, the concerned value of benefit was reported as zero for both the employee member and the employer entity account holder, the value in respect of this portion should also be reported as zero under AEOI. 

It should be emphasized that the account information of the scheme member should still be reported in this case, but only that the account value in respect of the non-vested portion would be zero. In subsequent years, should the benefits become vested in the member, the account balance in the reporting should reflect such increase accordingly.