To fight against tax evasion, more governments are bringing a new measure of information-gathering and reporting for financial institutions. This is also known as the Common Reporting Standard (“the CRS”). Hong Kong, as a famous international financial centre, have been participating in the CRS since 1st January 2017, and committed to first exchange in 2018. We think you are supposed to understand what it means for you.
What is CRS?
The Common Reporting Standard (the CRS) is a worldwide information-gathering and reporting requirement for financial institutions (FI) in the CRS participating jurisdictions/countries, to help fight against tax evasion and protect the integrity of tax systems.
Under the CRS, the FI in countries participating in the CRS are required to seek, identify and determine tax resideny of their customers, and the tax residency status of their customers are report-able to the local tax authorities. The tax authorities in countries participating in the CRS begin automatic exchange of information for tax purposes.
In general, your tax residency will usually be where you are liable to pay income or corporate taxes. For a customer who appear to be a tax resident outside of the countries where he holds his account(s) in the FI, the FI will have certain information reported to the tax authorities where the account is, then the authorities may share this information with the tax authority of the country (or countries) where you are tax resident automatically.
Related information can be found in Automatic Exchange Portal of OECD:
- Common Reporting Standard (CRS)
- Automatic Exchange of Information
Who are doing the CRS?
All financial institutions (FI) – that includes banks, insurers and asset management businesses – in participating countries are required by tax authorities to be compliant with the CRS. FI are legally required to establish the tax residency status of all thir customers. FI are required to report your tax details under the legal obligations introduced by countries participating in the CRS.
Why does customers’ tax residency matter to FI?
Under the CRS, the tax authorities require the FI to collect and report certain information relating to their customers’ tax statuses.
For banks, they will ask you to certify a number of details about yourself, when you open a new bank account, invest in new financial products or change your circumstances in some way. This process is called “self-certification”.
The self-certification processes vary depend on the factors as follows:
- the type of account or product you hold with FI
- where you bank with
- where you live or operate as a business
What kind of customers are affected?
In general, the CRS affects all customers of FI, whether you are an individual customer, a corporation, or a controlling person of business which has any business relationship with the FI, the CRS may affect you.
Usually, FI have prepared 3 type of CRS self-certification form for separate group of customers based on the type of accounts the customers are holding with FI. These groups are namely:
Under the CRS, an individual is a customer that holds a personal account or product with FI, this also includes Sole Traders (Known as Sole Proprietor in some countires) which is a type of business entity owned and run by one individual and where there is no legal distinction between the owner and the business.
Under the CRS, an entity is a legal person or a legal arrangement, such as a corporation, organisation, partnership, trust or foundation. For banks, Entity includes any customer that holds a business account, product or service.
- Controlling Persons:
The term Contolling Person means the natural person(s) who exercises a controlling interest over the Entity under the CRS.
For an entity, the Controlling Person(s) who can exercise controlling interest depend on the legal structure of the entity. For example, the Controlling Person(s) of limited companies include the beneficial owners* or if no such person exits, then by any natural person(s) that exercises control over management of the company such as senior managing staff of this.
Remark * : The definition of beneficial owners varies according to law and practice of countries, generally any natural person that holds directly or indirectly more than 25 percent of the shares or voting rights of the company is regarded as a beneficial owner.
Under the CRS, even if you are tax resident in the same country as where you hold your account. However, typically your details will not be report-able to the tax authorities for CRS purposes.
What customers’ information is the FI required to ask and verify for their tax residency status?
For the identification of tax residency, FI will require the customers to complete the required self-certification form:
- Personal particulars:
- Personal identification number*
- Passport number*
- Place of birth*
- Date of birth*
- Country(ies) of tax residence
- Taxpayer identification number(s) (TIN)*
- Social security number*
- National insurance number*
- Business details:
- Taxpayer identification number(s) (TIN)*
- Business registration number
- Place of registration/incorporation
- Controlling Person particulars (for Controlling Persons of certain type of the Entities)
Remark(s) * this does not apply in all participating countries and is subject to local law requirements.
How often will I need to provide this information?
Once we have a valid self-certification on file, you will only be asked to complete another when you update certain information on your account or we believe your report-able status may have changed.
Why are FI you asking customers for supporting documents?
FI are required by law to verify the details you have provided as part of your self-certification. FI might ask you for a copy of your passport to verify your identity or for some other evidence of your tax residency declared in your self-certification.
What customers’ information are report-able to tax authorities?
The information reported to tax authorities will have been provided in the self-certification form, and details about the accounts and products you have with us, including:
- the balance or value
- the total amounts of interest or payments credited
Which countries are participating in the CRS?
For a complete and updated list of countries participating in the CRS, please see the OECD CRS portal – CRS implementation by jurisdiction.
The participating countries/jurisdictions (updated on 1st January 2017) are as follows:
- British Virgin Islands
- Cayman Islands
- Czech Republic
- Isle of Man
- South Africa
- South Korea
- United Kingdom
- Brunei Darussalam
- Cook Islands
- Hong Kong (China)
- Macau (China)
- New Zealand
- Saudi Arabia
- United Arab Emirates
Where can I find further information and advice?
For further information on your tax residency, you should refer to the rules governing tax residence that have been published by each national tax authority. You may refer to OECD CRS web portal.
You can also find out more at the OECD Automatic Exchange of Information portal.
The information I have been asked for on the forms is similar to the information I have been asked for under FATCA. Why is this different?
Even if you have already provided information under the United States government’s Foreign Account Tax Compliance Act (FATCA), you may still need to provide additional information for the CRS as these are different regulations with different requirements.
FATCA is US Law and requires financial institutions to identify US Persons and report in line with local FATCA regulations, based on citizenship. The CRS requires financial institutions to identify the tax residency of all our customers and in most cases report information on customers who are tax resident outside of the country where they hold their accounts.
Hong Kong and US has signed tax information agreement since 2014.