When Hong Kong passed the CRS (Common Reporting Standards) framework in 2016, it became evident that financial operations had changed completely. The Hong Kong CRS Framework is a demonstration of the unwavering commitment by the jurisdiction to curb tax evasion and fraud. Despite this noble course, many are the people who have been asking about the implications of the new framework.
The AEOI framework was passed by the OECD members in 2014 to address the problem of tax evasion. Before 2014, it emerged that tax evasion and fraud were the two primary components that caused economic recession of 2008-2009 and its severe consequences. The moment people avoid paying taxes and stash cash in tax havens; local administrations are left with no option but to tax the small businesses. Once the burden becomes too much for these enterprises, they either collapse or shrink resulting in an economic recession.
When this situation is replicated on a global scale, the impacts are catastrophic. This is what happened in 2008-2009 when the economic recession almost reached the great depression of the 1930s.
What to anticipate when opening a bank account
After CRS framework was passed by OECD members in 2014 and now operationalized under the IRD Laws in Hong Kong, it means that financial administrations are required to gather details of offshore accounts and giving them to the government. Then, the government will share it with members of the OECD to help curb tax evasion and fraud. Here is what to expect when opening a bank account in line with CRS Framework Hong Kong.
Expect more scrutiny from banks as they seek information about reportable accounts.
The reporting institutions such as banks are required to gather as much information as possible about their offshore clients to demonstrate their tax status back at home. Therefore, the banks want to draw closer and understand what your business is and how it operates. Once they gather the information, you will be classified as a reportable or non-reportable account. These are the details that Hong Kong IRD shares with your home country.
The requirement for tax information back home
One of the primary reasons that made people move to foreign jurisdictions in the past was hiding cash to avoid paying taxes. Most banks only received the cash and stored it faithfully without worrying where it came from. But things have changed. Every bank account in Hong Kong wants to know about your tax compliance back at home.
Details about the business and its operations
Every bank in Hong Kong targets getting great clients. Indeed, even the banks are in business and want to grow. Therefore, they want to understand who they are dealing with. This is a two-faceted approach. By insisting to know how your business operates, the bank will establish that it does not work with risky parties and aims to help grow the economy. Then, the bank will target establishing whether you need financial support.
The Hong Kong AEOI system changed the banking model in the jurisdiction. Things have become tighter, and every enterprise has to demonstrate compliance with tax requirements both in Hong Kong and at home. It is important to ensure that you can provide all the required info to avoid the account application getting declined.