Author: Dominik Stuiber
Is your PIC a CRS Reporting Financial Institution (RFI) and what are your obligations?
Personal Investment Companies (PICs) that fall within the definition of an Investment Entity are reporting Financial Institutions (FIs) under the OECD’s Common Reporting Standard (CRS). As such, these PICs are subject to the same reporting standards that a bank or other financial institution is.
With the Inland Revenue (Amendment) (No. 3) Ordinance 2016 (IRO), which came into effect on 30 June 2016, Hong Kong ratified the OECD’s initiative for Automatic Exchange of Financial Account Information (AEOI) which consists of the Common Reporting Standard (CRS) and Competent Authority Agreements (CAA). The CRS sets out the reporting and information collection obligation on financial accounts of reportable persons by FIs. A CAA provides the legal basis and modality for the exchange of financial account information between governments.
According to the CRS definition, an entity is an investment entity if it is trading in securities and other financial assets[i], managing an individual portfolio, or otherwise invests or manages financial assets and is discretionarily managed by another financial institution. A PIC with a private banking account where the bank manages the investment portfolio very likely fulfils the definition of an investment entity.
What are the obligations of a PIC?
The IRO requires FIs to notify the Hong Kong Inland Revenue Department (IRD) if they maintain a reportable account and file the Financial Account Information Returns. This is facilitated through the AEOI Portal provided by the IRD. The portal launched on 3rd July 2017 and FIs are required to register within 3 months. A PIC being a reporting FI, therefore, will need to register with the IRD before 3rd October 2017 to be compliant.
PICs incorporated in an offshore jurisdiction should refer to the implementation rules of CRS in the respective jurisdiction of incorporation. An added difficulty can be the tax residency rules and different treatments depending on the entity. In Belize, for example, International Business Companies (IBCs) are not to be considered tax residents in Belize. The Seychelles deem all companies, including IBCs, incorporated in the Seychelles as tax residents.
[i] Including money market instruments (cheques, bills, certificates of deposit, derivatives); foreign exchange; exchange, interest rate and index instruments; transferable securities; or commodity futures.