This content is from: Hong Kong SAR

Hong Kong: TIEA signed with US


Ayesha Lau
Darren Bowdern
On the March 25 2014, Hong Kong signed an agreement for the exchange of tax information with the US.

This is the first tax information exchange agreement (TIEA) Hong Kong has signed since the legal framework for entering into TIEAs was passed in July last year. TIEAs allow the Inland Revenue Department (IRD) to exchange information upon request made by another jurisdiction in relation to the assessment or enforcement of tax matters.

The Hong Kong government regards the signing of the TIEA with the US as a demonstration of its commitment to promoting tax transparency but has reiterated that its priority remains the expansion of its network of comprehensive agreement for the avoidance of double taxation (CDTAs) with its major trading and investment partners.

The TIEA will only become effective after Hong Kong and the US have completed their respective legislative and ratification procedures to bring the TIEA into force. It is expected that the relevant legislation will be implemented as a matter of priority.

The TIEA with the US will also facilitate the exchange of tax information under a request made by the US under the US Foreign Account Tax Compliance Act (FATCA). FATCA, which comes into effect in July 2014, requires foreign financial institutions such as banks to declare to the US tax authorities the foreign holdings of US persons.

In this regard, Hong Kong intends to enter into an intergovernmental agreement with the US which will enable Hong Kong financial institutions to comply with FATCA.

Going forward it is anticipated that Hong Kong will be approached by more jurisdictions to conclude a TIEA.

The Inland Revenue (Amendment) Ordinance 2014 was gazetted on March 28 2014. The Ordinance provides a tax concession for captive insurers wherein they will enjoy a 50% reduction in the profits tax on their insurance business of offshore risks. The concession, which was proposed in the 2013-14 Budget, has effect from the year of assessment 2013/14 onwards.

Captive insurance is widely used as a risk management tool in developed economies but its current utilisation in Asia is low. Attracting enterprises to set up captive insurers in Hong Kong is seen as helping the development of related businesses, such as reinsurance, legal and actuarial services; make Hong Kong's risk management services more diversified; and reinforce Hong Kong's status as a regional insurance hub. With a sound regulatory regime and availability of a wide range of professionals, Hong Kong is well positioned to establish herself as a domicile for captive insurers.

The tax concession aims to attract more enterprises, particularly from the mainland, to establish their captive insurers in Hong Kong. To date, at least three mainland enterprises have set up captive insurers to underwrite their own risks. This tax incentive, coupled with the central people's government policy announcement in June 2012 to encourage mainland enterprises to form captive insurers in Hong Kong, should provide the impetus for mainland enterprises to consider setting up captive insurers in Hong Kong.

Ayesha Lau (ayesha.lau@kpmg.com) and Darren Bowdern (darren.bowdern@kpmg.com)
KPMG
Tel: +852 2826 8028 & +852 2826 7166
Website: www.kpmg.com

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