Hong Kong is a leading financial center that has taken steps to promote tax transparency and combat tax evasion.
One such initiative is the Automatic Exchange of Financial Information (AEIO), which requires financial institutions to collect and report information on foreign tax residents to the Hong Kong Inland Revenue Department (IRD).
In this blog, we will provide an overview of AEIO in Hong Kong, its purpose, and what it means for taxpayers and financial institutions.
What is the Automatic Exchange of Financial Information (AEIO)?
The Automatic Exchange of Financial Information (AEIO) is an international initiative developed by the Organisation for Economic Co-operation and Development (OECD) to promote tax transparency and combat tax evasion.
The AEIO requires financial institutions to collect and report information on foreign tax residents to their respective tax authorities. As of 2023, more than 100 jurisdictions have committed to the implementation of AEIO.
What is the purpose of AEIO?
The primary purpose of AEIO is to prevent tax evasion by ensuring that financial institutions report the financial accounts of foreign tax residents to their respective tax authorities.
The information collected and reported includes account balances, interest, dividends, and other income generated by the account. The data is used to identify taxpayers who may be evading tax by hiding assets offshore.
How does AEIO work in Hong Kong?
Hong Kong implemented AEIO in 2018, following the signing of the Multilateral Competent Authority Agreement (MCAA) by the Hong Kong government.
Under AEIO, financial institutions in Hong Kong are required to collect and report information on the financial accounts of foreign tax residents to the IRD.
Financial institutions are required to conduct due diligence on their account holders to determine their tax residency status.
If an account holder is found to be a tax resident of a foreign jurisdiction, the financial institution is required to collect information on the account and report it to the IRD.
The IRD will then exchange the information with the relevant foreign tax authorities.
What does AEIO mean for taxpayers and financial institutions?
For taxpayers, AEIO means that their financial information may be shared with foreign tax authorities if they are tax residents of another jurisdiction. It is important for taxpayers to ensure that they are compliant with tax regulations in their home jurisdiction and the jurisdictions where they hold financial accounts.
For financial institutions, AEIO means additional compliance obligations and reporting requirements. Financial institutions are required to implement due diligence procedures to identify tax residents of foreign jurisdictions and report the relevant information to the IRD. Failure to comply with AEIO may result in penalties and reputational damage.
Conclusion
The Automatic Exchange of Financial Information (AEIO) is an international initiative to promote tax transparency and combat tax evasion.
Hong Kong has implemented AEIO, which requires financial institutions to collect and report information on foreign tax residents to the Hong Kong Inland Revenue Department (IRD).
It is important for taxpayers and financial institutions to understand the requirements of AEIO and ensure compliance with relevant tax regulations.
