Hong Kong bank account reporting is established in the 2016 IRD Bill on CRS (common reporting standards) based on the 2014 OECD Convention on Mutual Administrative Assistance in Tax Matters. Hong Kong committed to implementing the protocol and passed a new IRD Bill on sharing financial information in June 2016.
The banks are tasked with carefully filtering the accounts and compiling reports on non-residents who are at risk of task evasion.
What the banks look for to classify an account as reportable
The most important role of a bank under the CRS is identifying the reportable accounts. Under the new legal framework, reportable accounts are those held by foreigners/ non-residents. However, banks are required to go beyond this. In particular, the banks must focus on accounts that have the following characteristics;
- Held by a non-resident
- The account holder must be from a jurisdiction that has signed a CDTA (comprehensive avoidance of double taxation agreement) with Hong Kong.
- The account must be held by a person who demonstrates a high probability of avoiding tax. If the respective account owner demonstrates he reveals the account details to his home administration and is tax compliant, the bank can drop the account from the reportable list.
Information to include in the account reporting under CRS
What exactly do banks include in the bank account reporting? CRS targets gathering information that can help to narrow down to people who avoid paying taxes back at home. Therefore, the banks are required to gather information including the following;
- Personal details such as names and account numbers
- The account history for a couple of years
- The current account balances
A closer look at people with bank accounts and those opening new ones
As the new CRS framework took effect from 1st January 2017 and banks expected to make reports of reportable accounts for the entire year, a lot of things can change. In the past, opening a bank account only required one to provide personal details and intent of having the account. Now, banks are demanding more information from their clients.
If you already have a bank account, additional details such as personal tax compliance at home and proof of residence are required. You can also provide more information about the tax compliance history as well as other jurisdictions where you have bank accounts. This will demonstrate you are a low-risk party and, therefore, qualify your account a non-reportable account.
Opening new bank accounts in Hong Kong has become very difficult. The Hong Kong bank account reporting framework has made institutions redefine the rules. The main target is ensuring that all information is captured in a manner that future reporting is easy and direct. This means that more information including personal tax compliance back at home will be required.
Hong-Kong bank account reporting has placed an additional role to the banks in Hong Kong. The banks are now getting interested in knowing their clients more and establishing whether they are operating a personal or corporate account. With the new reporting system, tax evasion is getting relegated to the back seat. It is only a matter of time before it is eliminated in Hong Kong.