1. What is “Common Reporting Standard” (CRS)?

The Organization for Economic Co-operation and Development (OECD) launched the Common Reporting Standard (CRS) as endorsed by the G20.

• CRS also called Automatic Exchange of Financial Account Information (AEOI).

• CRS is a new international standard, designed to enhance tax transparency and combat cross-border tax evasion.

• The governments of all jurisdictions participating in CRS need to obtain relevant financial account information from their financial institutions and exchange that information automatically with jurisdictions of residence of account holders on an annual basis.

• More than 100 jurisdictions over the world have committed to the implementation of CRS, including China and Hong Kong.

• The financial institution will collect and furnish to the Inland Revenue Department (“IRD”) information of the identified account holders (individual or entity) and the financial account information on an annual basis.

For more details, please refer to the link as follow:
https://www.ird.gov.hk/eng/tax/dta_aeoi.htm

To comply with local, national or international laws and legal requirements, Guotai Junan need to collect more information to analyze your tax status in other tax jurisdictions.


2. Who will be affected by CRS?

A financial institution resident (or known as “located”) in Hong Kong will identify the financial accounts held by individuals or entities liable to tax by reason of residence in the AEOI partner jurisdictions. AEOI partner jurisdictions that conclude Comprehensive Double Taxation Agreements or Tax Information Exchange Agreements with Hong Kong committed to conduct Automatic Exchange of Financial Account Information as required by CRS on an annual basis.

For the latest list of tax jurisdictions that have committed to the AEOI, please visit the OECD website:
https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/crs-by-jurisdiction/


3. How will individuals and entities be affected by AEOI?

Reporting financial institutions will be liable for reporting on financial accounts held by reportable persons.  Hong Kong taxpayers who are not tax residents of any territory outside Hong Kong will not be reported. The Inland Revenue Ordinance (“IRO”) requires the reporting financial institutions to apply due diligence procedures to collect all required information and documentation from account holders. To identify reportable persons, reporting financial institutions may ask account holders to complete self-certification forms for verification of their tax residency status. The self-certifications will be kept by the reporting financial institutions for a period of six years.


4. What is a self-certification?

This is a formal declaration that the account holder makes in connection with his/her tax residence. According to the due diligence procedures set out in the Amendment Ordinance (which are based on the international standard required), self-certifications would be required from account holders for all new accounts (i.e. accounts opened on or after 1 January 2017).  As for pre-existing accounts (i.e. accounts opened before 1 January 2017), if a reporting financial institution has doubts about the tax residence of an account holder, it can seek a self-certification from the account holder to verify its tax residence. Please also see Item 7 below.

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

5. 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 183 days within a tax year) or, in the case of a company, the place of incorporation or where the central management and control of the entity 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 resident 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 as follows:
https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-residency/#d.en.347760


6. What is “Taxpayer Identification Number”(TIN)

A jurisdiction will identify its tax resident by Taxpayer Identification Number. The Taxpayer Identification Number is called as “TIN”. (E.g. The TIN of Hong Kong/China individual is the identity card number.) The TIN of a Hong Kong registered company is the business registration number registered with the Business Registration Office of the Inland Revenue Department. The TIN of a Chinese registered company is the number of its business license.


7. If I am not able to provide my TIN in the self-certification, who should I do?

If client is not able to provide TIN, please status the reason as follows:
A –The jurisdiction where the Account Holder is a resident for tax purposes does not issue TINs to its residents (E.g. Cayman Islands)
B –The Account Holder is unable to obtain a TIN or equivalent number (Please explain the reason)
C –TIN is not required. Select this reason only if the authorities of the jurisdiction of tax residence do not
require the TIN to be disclosed. (E.g. Japan)


8. How can reporting financial institution verify the information in self-certification provided by an account holder?

Financial institutions are expected to rely on the self-certification if it satisfies the reasonableness test based on the information obtained by the institution in connection with the opening of the account, including any documentation collected pursuant to the prevailing due diligence or know-your-customers procedures. Financial institutions are not expected to carry out an independent legal analysis of relevant tax laws to determine the residence of an account holder.


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

Account holders should advise the reporting financial institutions 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 financial institutions with a suitably updated self-certification form within 30 days of such change in circumstances.
 

10. Who will be the reportable persons for AEOI?

A financial institution resident (or known as “located”) in Hong Kong will identify the financial accounts held by individuals or entities liable to tax by reason of residence in the AEOI partner jurisdictions.  The financial institution will collect and furnish to the Inland Revenue Department (“IRD”) information of the identified account holders (individual or entity) 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 is tax resident.


11. If I am a tax resident of an AEOI partner jurisdiction and hold a financial account at one of the financial institutions in Hong Kong, what information will be exchanged?

According to CRS, Guotai Junan is required to provide the below info to IRD：

• Name

• Address

• Date of birth (Account holder & Controlling person)

•  Jurisdiction of residence

•  TIN

• CRS entity type

• Controlling person type (If applicable)

• Account balance or value (year-end), and the gross amount of interests, dividends and sale proceeds of financial assets as appropriate for the year concerned

12. What are the Active NFE and Passive NFE?

In general, an entity will be classified as Active NFE if it meets any of the following criteria:

• less than 50% of the NFE’s gross income for the preceding calendar year or other appropriate reporting period is passive income and less than 50% of the assets held by

• the NFE during the preceding calendar year or other appropriate reporting period are assets that produce or are held for the production of passive income;

A “Passive NFE” means any: (i) NFE that is not an Active NFE; and (ii) Investment Entity located in a Non-Participating Jurisdiction and managed by another Financial Institution.
 

13. What is Passive income？
 

• Dividend

• Interest

• Income equivalent to interest

• Rent and royalty

• Annuities

• Net income from swaps

• Amounts received under Cash Value Insurance Contracts

14. I am a Hong Kong permanent resident and do not hold any foreign passports and only have tax liability in Hong Kong.  Will my information be reported by financial institution to other jurisdictions under the AEOI regime?

If you are not a tax resident in any territory outside Hong Kong, the financial institution is not required and should not report your financial account information to IRD for transmission to any tax administration outside Hong Kong.


15.  I am a tax resident of Country C and I hold a financial account for the benefit of my spouse who is not a tax resident of Country C.  Will the financial account information be transmitted to the tax authority of Country C if it becomes an AEOI partner of Hong Kong?

No.  The account holder is the beneficiary, not the agent, of the account.  You are not the account holder, but your spouse.  Since your spouse is not a tax resident of Country C, the account information will not be exchanged.  Only information of a financial account of which the beneficiary, and not the agent, is a tax resident of Country C will be exchanged.


16. Can I object to the financial institution for releasing my information to IRD?

The IRO imposes legal obligation on financial institutions to establish and apply due diligence procedures to identify tax residents of reportable jurisdictions outside Hong Kong for AEOI purpose and collect specified information for submission to IRD.
 
Financial institutions are expected to observe requirements under the Personal Data (Privacy) Ordinance.  For instance, they should inform the account holders of the purpose of use of the personal data for AEOI.  They should take all practicable steps to ensure the accuracy and security of the personal data.  Account holders are entitled to request access to and correction of their personal data.  In case an individual refuses to allow the financial institution to release his personal data for AEOI purpose, the financial institution may have to consider whether or not the account should be maintained.


17. Will individual account holders be sanctioned?

The focus of the Amendment Ordinance is to ensure compliance by financial institutions; hence, the sanctions for non-compliance of the due diligence requirements and for filing of incorrect returns with intent to defraud were targeted at financial institutions.
 
As far as individual account holders are concerned, it is an offence for a person to provide, knowingly or in a reckless manner, misleading, false or incorrect information in a material particular, in making a self-certification to financial institutions. The penalty is fine at Level 3/ $10,000.  This is to ensure that we abide by the international standard concerning effective implementation.
 

18.   Reference

Inland Revenue Department https://www.ird.gov.hk/index.htm
Organisation for Economic Co-operation and Development https://www.oecd.org/
State Taxation Administration https://www.chinatax.gov.cn/