Status Update of Hong Kong Double Taxation Agreements and Tax Information Exchange Agreements
As an international trading and financial centre, Hong Kong has been keen on establishing extensive double taxation agreements (‘DTAs’) with its trading partners in order to provide investors certainty in respect of taxing rights and incentives for carrying on business in Hong Kong. The DTA network also stimulates the development of a mutual economy, prevents discrimination and double taxation. Apart from DTAs, Hong Kong has entered into Tax Information Exchange Agreements (‘TIEAs’) with other tax jurisdictions for the purpose of combating tax evasion. The current status of Hong Kong DTAs and TIEAs is summarised as follows:
Hong Kong has DTAs in force with the following 28 tax jurisdictions:
Please note that Hong Kong has further signed DTAs with South Africa, the United Arab Emirates, Italy and Korea. The orders of implementation of the DTAs with South Africa and the United Arab Emirates have been gazetted on 15 May 2015, which will be effective after passing local legislation and completing the ratification procedures.
Furthermore, Hong Kong is actively negotiating DTAs with the following 14 tax jurisdictions:
Currently, Hong Kong has only one TIEA in force which is entered with the United States. Moreover, it has signed TIEAs with six Nordic jurisdictions (i.e. Denmark, the Faroe Islands, Greenland, Iceland, Norway and Sweden) on 22 August 2014, which will become effective after enactment of legislation and completion of ratification procedures.
Automatic exchange of information (‘AEOI’)
As mentioned in our article ‘Consultation on Automatic Exchange of Financial Account Information in Tax Matters in Hong Kong Stated’ dated 30 April 2015, Hong Kong has launched a consultation exercise on AEOI (which is governed under the OECD’s Common Reporting Standard (“CRS”)) in April 2015 and targets to implement the AEOI by the end of 2018.
According to the Consultation Paper published by the Financial Services and the Treasury Bureau (‘FSTB’) of Hong Kong and a recent meeting with the senior officials of the FSTB and the Hong Kong Inland Revenue Department (‘HK-IRD’) and pursuant to the CRS, the financial institutions (‘FIs’) will be the reporting parties responsible for supplying the required information of the relevant account holders to the HK-IRD. Nevertheless, it is proposed that the account holders, but not the FIs, will be responsible for determining their tax residency for AEOI purposes. In addition, the account holders will be accountable and responsible for the correctness of their information to be exchanged.
One has to be aware that the account holders/FIs may not be notified by the HK-IRD when the exchange of information takes place and the HK-IRD may also not confirm the correctness of the information with the account holders/FIs before the information exchange is conducted. Hence, the account holders have to voluntarily update their information with the FIs.