Hong Kong Signs New AEOI Agreements and Proposes Significant Further Expansion
The Hong Kong Government has recently signed agreements for the implementation of automatic exchange of financial account information (AEOI) with two more countries, bringing its number of AEOI partners to nine. In addition, the Hong Kong Government has recently introduced draft legislation that adds 72 jurisdictions (including Mainland China) to Hong Kong’s list of "reportable jurisdictions". The draft legislation proposes that Hong Kong financial institutions (HK FIs) will be required to report to the Inland Revenue Department (IRD) by May 2018 the information collected from 1 July 2017 to 31 December 2017 in respect of accounts held by tax residents of these 72 jurisdictions. Reporting in subsequent years will cover the full calendar year. This information will be kept by the IRD and exchanged with the relevant jurisdiction after an AEOI agreement has been concluded with that jurisdiction. Therefore, when an AEOI agreement is entered into with one of the prospective AEOI partners, the relevant AEOI partner will receive information from the IRD dating back to 1 July 2017.
New AEOI agreements
On 3 April 2017, Hong Kong signed Competent Authority Agreements (CAAs) with Portugal and South Africa for conducting AEOI. Earlier this year, Hong Kong signed similar agreements with Belgium, Canada, Guernsey, Italy, Korea, Mexico and the Netherlands (together with Portugal and South Africa, the Confirmed AEOI Partners). CAAs with Japan and the United Kingdom were signed in 2016.
New legislative proposal
The Hong Kong Government recently introduced legislative proposal that adds the Confirmed AEOI Partners as well as 63 prospective AEOI partners (the Prospective AEOI Partners) to the list of reportable jurisdictions, which currently includes Japan and the UK. Under the proposed legislation, HK FIs will be required to identify and collect information in relation to accounts held by tax residents of both the Confirmed AEOI Partners and the Prospective AEOI Partners. In other words, HK FIs will be required to submit to the IRD the information about accounts held by residents of the Prospective AEOI Partners, even though Hong Kong does not currently have CAAs with these jurisdictions.
According to the proposed legislation, the due diligence and data collection obligations with respect to accounts held by residents of Confirmed and Prospective AEOI Partners start from 1 July 2017, with the first reporting period being from 1 July to 31 December 2017. HK FIs will be required to submit the relevant data to the IRD by May 2018. The IRD will conduct the exchange with the Confirmed AEOI Partners in September 2018. For the Prospective AEOI Partners, the relevant data (from 1 July 2017 onwards) will be kept by the IRD and exchanged with the jurisdiction concerned after a CAA has been signed. In subsequent years, HK FIs are required to collate full year data for all jurisdictions included as reportable jurisdictions.
The Prospective AEOI Partners are from the following three categories: (i) jurisdictions which expressed an interest to the Organisation for Economic Cooperation and Development in 2016 in conducting AEOI with Hong Kong; (ii) Hong Kong’s tax treaty partners which have committed to AEOI; and (iii) Member States of the EU.
The Prospective AEOI Partners are: Antigua and Barbuda, Argentina, Australia, Austria, Bahamas, Brazil, Brunei Darussalam, Bulgaria, Cayman Islands, Chile, The Mainland of China, Colombia, Costa Rica, Croatia, Curacao, Cyprus, Czech Republic, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Grenada, Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Japan, Jersey, Kuwait, Latvia, Lebanon, Liechtenstein, Lithuania, Luxembourg, Malaysia, Malta, Mauritius, Montserrat, New Zealand, Norway, Poland, Qatar, Romania, Russia, Saint Vincent and the Grenadines, Saudi Arabia, Seychelles, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, United Arab Emirates, Uruguay and Vanuatu.
The reporting of accounts held by tax residents of Japan and the UK will cover the full 2017 calendar year as planned.
What HK FIs should do
In light of the short timeline, HK FIs should prepare for applying the AEOI due diligence and reporting obligations to accounts held by tax residents of the Confirmed and Prospective AEOI Partners.
HK FIs that implement the wider approach (i.e. collecting information in respect of accounts held by all foreign tax residents) should be less affected than HK FIs that implement the "targeted approach" (i.e. collecting the required information only in relation to reportable accounts). As Hong Kong’s AEOI network is expanding very rapidly, HK FIs that implement the "targeted approach" may consider adopting the "wider approach".