Regulation and Tax

AEOI does not replace FATCA, and is in addition to it. AEOI does not change the intergovernmental agreement signed on 13 November 2015 between the Government of the Hong Kong Special Administrative Region of the People’s Republic of China and the Government of the United States of America which is intended to facilitate compliance with FATCA by financial institutions in Hong Kong. AEOI also does not generally change the requirements under FATCA applicable to financial institutions in Hong Kong.

For additional background on FATCA, please see our website on FATCA here.

As of the date of this FAQ, the United States government has not announced its participation in AEOI implementation.

The Hong Kong Securities Clearing Company Limited (HKSCC) and HKSCC Nominees Limited are Reporting Financial Institutions for AEOI purposes.

Paragraph 18 of Chapter 3 of the HK IRD’s Guidance for Financial Institutions sets forth on the HK IRD website regarding AEOI (HK IRD Guidance) indicates the following:

“In the case where HKSCC is a custodial institution, it is responsible for undertaking due diligence and reporting obligations in respect of the Investor Participants, as defined in the General Rules of the Central Clearing and Settlement System (CCASS). Participants other than Investor Participants will fall outside the scope of reportable financial accounts since they are financial institutions, and HKSCC is not required to conduct due diligence or undertake any reporting in connection with these accounts” (emphasis added).

In addition, paragraph 19 of Chapter 3 of the HK IRD Guidance indicates that HKFE Clearing Corporation Limited, The SEHK Options Clearing House Limited and OTC Clearing Hong Kong Limited “do not fall within the definition of financial institution and are not required to conduct due diligence or undertake any reporting on their participants. The financial institutions, which are participants of the clearing houses, are responsible for undertaking the applicable due diligence and reporting obligations.”

The following are some key upcoming dates for AEOI compliance steps for a Reporting Financial Institution in Hong Kong:

Date	AEOI compliance step
From 1 January 2017 onwards	New account due diligence procedures meeting AEOI requirements should be in place for new individual accounts and new entity accounts
From 1 July 2017 onwards	New account due diligence procedures meeting AEOI requirements will need to be expanded to cover a significant number of additional jurisdictions’ tax residents, where the Reporting Financial Institution was not already collecting such information from 1 January 2017 onwards (FAQ readers should monitor for any relevant updates in this regard, if of interest to them.)
Currently expected approx. July 2017 through 30 September 2017	AEOI Portal on the HK IRD’s website expected to be available for Reporting Financial Institutions to submit mandatory notifications under AEOI to the HK IRD. (FAQ readers should monitor for any relevant updates in this regard, if of interest to them.)
31-December-2017	Reporting Financial Institution should have completed AEOI due diligence on preexisting “high value” accounts held by individuals
31-December-2017	Annual retesting of certain preexisting individual and entity accounts against account balance thresholds relevant to AEOI
31-May-2018	Reporting Financial Institution to file AEOI return relating to 2017 calendar year with the HK IRD
September-2018	HK IRD to pass 2017 calendar year AEOI information to tax authorities of relevant jurisdictions, including but not limited to certain jurisdictions with which Hong Kong has a competent authority agreement (CAA) in place. (FAQ readers should monitor for any relevant updates in this regard, if of interest to them.)
31-December-2018	Reporting Financial Institution should have completed AEOI due diligence on preexisting accounts including preexisting “lower value” accounts held by individuals and relevant preexisting entity accounts
31-December-2018	Annual retesting of certain preexisting individual and entity accounts against account balance thresholds relevant to AEOI

AEOI requires that HKSCC collect a self-certification form on AEOI from new Investor Participants onboarded on or after 1 January 2017 and perform AEOI due diligence on these Investor Participants. HKSCC may request other materials from certain new Investor Participants as part of HKSCC’s conduct of AEOI due diligence.

A new Individual Investor Participant has to complete and submit an Investor Participant Self-Certification Form. Starting from 1 January 2017 onwards, this form will collect both FATCA and AEOI information from the new Individual Investor Participant.

A new Corporate Investor Participant has to complete and submit a Corporate Investor Participant Self-Certification Form containing AEOI information. The submission of this form is in addition to the IRS tax form (such as IRS Form W-8BEN-E) that is required to be submitted by a Corporate Investor Participant to HKSCC in order to satisfy FATCA requirements.

In addition, HKSCC’s receipt of certain additional information from a new Individual Investor Participant or Corporate Investor Participant subsequent to the participant’s admission to HKSCC may result in HKSCC’s conduct of additional AEOI due diligence on any change in circumstances indicated by the additional information. Furthermore, if the AEOI information previously submitted to HKSCC by an Individual Investor Participant or Corporate Investor Participant on its self-certification form changes, the participant is required to promptly complete and submit an updated self-certification form to HKSCC.

AEOI requires that HKSCC conduct certain AEOI due diligence on relevant preexisting Investor Participant accounts that were in place on 31 December 2016.

In addition, HKSCC’s receipt from 1 January 2017 onwards of certain additional information from an Individual Investor Participant or Corporate Investor Participant that already held an account on 31 December 2016 may result in HKSCC’s conduct of additional AEOI due diligence on any change in circumstances indicated by the additional information. Furthermore, if any AEOI information that an Individual Investor Participant or Corporate Investor Participant may submit to HKSCC on any self-certification form changes, the participant is required to promptly complete and submit an updated self-certification form to HKSCC.

HKSCC’s collection of a self-certification form on AEOI is required to facilitate HKSCC to comply with its due diligence obligations under the AEOI requirements adopted under the Inland Revenue Ordinance (Cap. 112 of the Laws of Hong Kong).

It is the Investor Participants’ obligation to provide the necessary information as per HKSCC’s request. Please refer to HKSCC’s Circular dated 22 December 2016 (Ref. No. LSD/126/2016) notifying the Investor Participants of the relevant amendments made to the “Terms and Conditions for Investor Participants” which came into effective on 3 January 2017.

The Investor Participant should consult its own professional advisors and obtain advice from them that takes into account the Investor Participant’s particular facts and circumstances.

General background information on AEOI can be found on the IRD’s website on AEOI here.

The Investor Participant should consult its own professional advisors and obtain advice from them on the Investor Participant’s jurisdiction(s) of residence for tax purposes that takes into account the Investor Participant’s particular facts and circumstances.

Having a HK ID Card does not necessarily mean a person is tax resident in Hong Kong. Not having a HK ID Card does not necessarily mean the person is not tax resident in Hong Kong. An Individual Investor Participant should consult his own professional advisors if he is unsure about whether he is tax resident in Hong Kong.

The question of whether an individual is tax resident in Hong Kong or not should not be confused with the observation that, for an individual who is tax resident in Hong Kong, the individual’s Taxpayer Identification Number or its functional equivalent (TIN) in Hong Kong is his HK ID Card number (including the digit in brackets but without the brackets themselves).

There is no fixed period after which a self-certification form on AEOI must be re-issued by the Investor Participant that provided the form.

However, an Investor Participant is required to submit an updated, newly completed and signed, self-certification form to HKSCC within 30 days of any change in the Investor Participant’s circumstances that affects the jurisdiction(s) in which the Investor Participant is resident for tax purposes or that causes any other information contained in a previously-submitted self-certification form to become incorrect or incomplete. This is a responsibility on the part of the Investor Participant to fulfill without prompting by HKSCC, as HKSCC would generally not be aware of relevant changes in circumstances of the Investor Participant. The Investor Participant’s signature on a previously submitted self-certification form represents the Investor Participant’s agreement to, among other things, fulfill this responsibility.

Where a Corporate Investor Participant is treated as a “passive NFE” for AEOI purposes, information on a previously submitted self-certification form can become incorrect or incomplete not only by reason of changes in circumstances at the level of the Corporate Investor Participant itself, but also upon changes in who is a “controlling person” of the Corporate Investor Participant, changes in the jurisdiction(s) in which any “controlling person” is resident for tax purposes and other changes in circumstances at the level of one or more “controlling person(s)” of the Corporate Investor Participant.

AEOI involves the reporting of information relating to financial accounts by Reporting Financial Institutions like HKSCC to the HK IRD, and by the HK IRD to tax authorities of jurisdiction(s) with which Hong Kong has entered into an AEOI agreement known as a Competent Authority Agreement or CAA.

We note that the Hong Kong legislation that, as of the date of this FAQ, has been passed to increase the number of jurisdictions whose tax residents would be reported (in 2018) by a Reporting Financial Institution to the HK IRD relating to 2017 (more specifically, relating to the second half of 2017 starting 1 July 2017). Under such legislation, a significant number of reportable jurisdictions would be so added for purposes of reporting relating to 2017. Please also refer to below FAQ.

Information on Individual Investor Participants who are treated as resident for tax purposes in a CAA jurisdiction or other relevant jurisdiction, as well as on certain Corporate Investor Participants that are treated as resident for tax purposes in such jurisdiction, are generally reportable by HKSCC to the HK IRD and may generally be reported by the HK IRD to such jurisdiction.

In addition, information on “controlling person(s)” (within the meaning of the AEOI rules) of a Corporate Investor Participant that is treated as a “passive NFE” for AEOI purposes is generally reportable by HKSCC under AEOI where a “controlling person” is treated as resident for tax purposes in a CAA jurisdiction or other relevant jurisdiction.

The HK IRD Guidance on information to be reported under AEOI can be found on the IRD’s website here.

The Inland Revenue (Amendment) (No.3) Bill 2017 (the Bill) introduced into the Legislative Council (LegCo) seeking to amend the definition of “reportable jurisdiction” for AEOI purposes was passed on 7 June 2017 so that it is not necessary for Hong Kong to have an effective Comprehensive Avoidance of Double Taxation Agreement (CDTA) or Tax Information Exchange Agreement (TIEA) as well as a CAA on AEOI with a jurisdiction to make that jurisdiction a reportable jurisdiction. Under the legislation, the list of reportable jurisdiction would generally be expanded to include a significant number of additional jurisdictions.

Reporting Financial Institutions in Hong Kong are expected to be obliged starting from 1 July 2017 onwards to identify and collect information on tax residents of a significant number of additional jurisdictions. The jurisdictions whose tax residents would have to be reported on under AEOI may be subject to further increases from time to time.

AEOI is intended to reduce cross-border tax evasion and increase tax transparency. AEOI information that the HK IRD forwards to tax authorities of an overseas jurisdiction regarding such jurisdiction’s tax residents may help such tax authorities identify those tax residents whose tax affairs are not compliant with the tax laws of the relevant overseas jurisdiction.

As discussed in relevant FAQs in this page, the information reported on by HKSCC under AEOI relates to tax residents of jurisdictions that have CAAs in place with Hong Kong and other relevant jurisdictions under AEOI rules. Please note that, for AEOI purposes, Hong Kong, the Macau Special Administrative Region of the People’s Republic of China, the People’s Republic of China and Taiwan are treated as separate jurisdictions.

In view of the above, an Individual Investor Participant who is treated by HKSCC as having only Hong Kong as his jurisdiction of residence for tax purposes is generally not reportable by HKSCC to the HK IRD under AEOI rules. AEOI focuses on Reporting Financial Institutions in Hong Kong identifying tax residents of jurisdictions other than Hong Kong.

However, a Corporate Investor Participant can have information reported on under AEOI even though the Corporate Investor Participant itself is treated by HKSCC as having only Hong Kong as its jurisdiction of residence for tax purposes. In the case of an account holder that is an entity, a Reporting Financial Institution is expected to apply AEOI due diligence procedures that are intended to address two different ways the account can be subject to AEOI reporting.

First, the jurisdiction(s) of residence for tax purposes of the Corporate Investor Participant itself may result in AEOI reporting. This is not expected to be the case for a Corporate Investor Participant that HKSCC treats as having only Hong Kong as its jurisdiction of residence for tax purposes. Second, if a Corporate Investor Participant is treated for AEOI purposes by HKSCC as a “passive NFE”, the account may be reportable under AEOI by reason of the jurisdiction(s) of residence for tax purposes of the Corporate Investor Participant’s “controlling person(s)”. A Corporate Investor Participant which is itself tax resident only in Hong Kong may nonetheless have its account reported on under AEOI by reason of this second way AEOI reporting can arise.

No, HKSCC’s reporting under AEOI on one joint account holder does not necessarily mean the other account holder will also be reported. HKSCC will consider each holder’s particular facts and circumstances (including, where applicable, a self-certification form on AEOI which is submitted by the particular joint holder and which may only cover one joint holder per form) under relevant AEOI rules.

IGAs are developed by the U.S. Government to facilitate the compliance and implementation of FATCA to remove the potential conflict-of-law issues in other jurisdictions. There are two distinct frameworks of IGAs, referred to as “Model 1” and “Model 2” frameworks.

The Government of the Hong Kong Special Administrative Region of the People’s Republic of China (HKSAR Government) and the Government of the United States of America signed an inter-governmental agreement (IGA) on 13 November 2014 that will facilitate compliance with FATCA by financial institutions in Hong Kong.  

As such, financial institutions should register with the IRS to obtain a Global Intermediary Identification Number (GIIN).

Please refer to the IGA published, and the Frequently Asked Questions prepared, by the HKSAR Government about FATCA compliance.

An FFI needs to register with the IRS and be subject to the terms of an FFI Agreement. The obligations include, among other things, (i) registration with the IRS; (ii) conducting certain due diligence procedures; (iii) reporting to the IRS annually certain information concerning financial accounts held by U.S. taxpayers or foreign entities in which certain U.S. taxpayers hold controlling ownership interests; (iv) reporting to the IRS information about the number and aggregate balance of non-compliant FFIs and of “Non-Consenting U.S. Accounts”; (v) obtain the consent of relevant parties for reporting their information to the IRS; and (vi) withholding of certain amounts paid to non-compliant FFIs.

An FFI that is FATCA-compliant in a Model 2 IGA jurisdiction will generally be a Reporting Financial Institution (FI) complying with due diligence requirements as described in Annex I of the IGA, or a Non-Reporting FI (including certain FFIs described in Annex II of the IGA and certain other deemed-compliant or exempted FFIs).

If the FFI is in a jurisdiction that has not entered into an IGA, the FFI will have to enter into an FFI Agreement with the IRS and comply with the U.S. FATCA Treasury Regulations. Such an FFI would be treated as a Participating FFI (PFFI).

No.

Even if you do not have any U.S. account holders, FATCA will require you, if you are an in scope FFI, to perform and undertake due diligence on your existing and new client accounts to identify their FATCA statuses. 

Certain information in this FAQ is derived from the IRS and the U.S. Treasury websites, and HKEX’s understanding of FATCA. While care has been taken regarding the accuracy of information provided, nothing in this FAQ is intended to be, or should be construed to constitute, legal or tax advice; and no information in this FAQ may be used or interpreted for the purpose of avoiding U.S. tax rules, tax liabilities, interest or penalties. Participants should consult their own professional advisors on the implications of FATCA.