In recent years, Hong Kong has taken steps to comply with international standards for tax transparency and combating tax evasion.
One such initiative is the implementation of the Common Reporting Standard (CRS), which requires financial institutions to collect and report information on the financial accounts of foreign tax residents to the Hong Kong Inland Revenue Department (IRD).
This blog will provide an overview of CRS in Hong Kong, its purpose, and what it means for taxpayers and financial institutions.
What is the Common Reporting Standard (CRS)?
The Common Reporting Standard (CRS) is a global standard for the automatic exchange of information on financial accounts between tax jurisdictions.
It was developed by the Organization for Economic Co-operation and Development (OECD) in 2014 to combat tax evasion and promote tax transparency. As of 2023, more than 100 jurisdictions have committed to the implementation of CRS.
What is the purpose of CRS?
The primary purpose of CRS 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 CRS work in Hong Kong?
Hong Kong implemented CRS in January 2017, following the signing of the Multilateral Competent Authority Agreement (MCAA) by the Hong Kong government.
Under CRS, 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 CRS mean for taxpayers and financial institutions?
For taxpayers, CRS 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, CRS 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 CRS may result in penalties and reputational damage.
The Common Reporting Standard (CRS) is an international initiative to promote tax transparency and combat tax evasion.
Hong Kong has implemented CRS, which requires financial institutions to collect and report information on the financial accounts of foreign tax residents to the Hong Kong Inland Revenue Department (IRD).
It is important for taxpayers and financial institutions to understand the requirements of CRS and ensure compliance with relevant tax regulations