Are you planning to open an offshore company or already have a business running in Hong Kong? One of the things that you need to understand is the Hong Kong CRS framework. What is Hong Kong CRS Framework?
A Brief Look at CRS
When OECD’s Convention on Mutual Administrative Assistance in Tax Matters was held in 2014, the primary resolution was the adoption of Corporate Reporting Standards (CRS).
The new system was developed to try and curb tax avoidance after it emerged that the previous method that only required sharing of tax information only on request was not working. CRS strongly borrowed from the US FATCA that requires every US citizen to report to the federal government about the cash held in foreign accounts.
Although not a member of OECD, Hong Kong was among the first states to commit to implementing the new CRS system. This is what led to the development of the Hong Kong CRS Framework.
Hong Kong CRS Framework and Business Operations in Hong Kong
To adopt the OECD framework, Hong Kong had to amend its IRD (Inland Revenue Department) laws to accommodate it. In 2016, Hong Kong passed the CRS Framework that provided a clear roadmap for the implementation of Automatic Exchange of Financial Information (AEOI). So, what is contained in the Framework?
- Hong Kong CRS framework Implementation
The Hong Kong CRS framework provides an outline for identifying reportable, call them risky, offshore accounts. It also highlights the details that should be gathered from such accounts. Here is what it mean for businesses.
- As a business, you need to know whether you are a reporting entity. This is particularly crucial for offshore businesses that are in the financial related enterprises.
- When opening bank accounts for a Hong Kong company, you will be required to provide more information about tax details of shareholders and directors in their home countries.
- The process of opening bank accounts, especially for businesses, is likely to take longer because of the additional information about tax compliance back home. Therefore, it is important to ensure that all the information that your bank needs, including the need for clarifications, are responded to promptly.
For Hong Kong, the CRS Framework came at an opportune time when it was seeking a way to bolster bilateral relations with other countries. So, it pegged the Automatic Exchange of Financial Information (AEOI) on reciprocity. This implies that if a country wants to share tax information about foreigners working in its jurisdiction, it must enter into a bilateral trade agreement. Furthermore, the cooperating country must enter into a Competent Authority Agreement (CAA) that defines the channel for passing the financial information.
- Hong Kong Used CRS to Build Partnerships with Other Countries
The passing of the Hong Kong CRS framework demonstrates the administration’s focus on building a business economy that supports enterprises for success. So, while the CRS targets to address tax avoidance issues, Hong Kong steered it to build more partnerships for business. This was a very smart move!
The Hong Kong CRS framework demonstrates the resolve of the Hong Kong administration to progressively build the jurisdiction as a global economic hub. With a jurisdiction such as Hong Kong, you can never get it wrong about business growth.