The Inland Revenue (Amendment) Automatic Exchange of Information (AEOI) Ordinance 2026 was gazetted on March 27, 2026, set to be enforced on January 1, 2027. This amendment is meant to upgrade the framework for the automatic exchange of financial account information in tax matters, in response to the Organisation for Economic Co-operation and Development’s (OECD) latest peer review recommendations.
Together with the Crypto-Asset Reporting Framework (CARF) Bill gazetted on May 22, 2026 and FSIE regime targeting MNEs, these measures seek to reduce incidences of tax avoidance in participating jurisdictions and raise the standard of CRS reporting.
What does the Amendment Mean?
The official wording published by the IRD says that:
“Under the AEOI standard, financial institutions are required to identify financial accounts held by tax residents of reportable jurisdictions or held by passive non-financial entities whose controlling persons are tax residents of reportable jurisdictions in accordance with due diligence procedures. Required information of these accounts has to be collected and furnished to the Department annually.”
Under CRS 2.0, financial institutions with accounts belonging to foreign shareholders are obligated to collect their tax residency information and automatically share it with the IRD and the shareholder’s jurisdiction on an annual basis, along with updated information on holdings in their accounts.
Prior to this amendment, foreign governments would not be privy to the offshore holdings and companies of directors of their tax residency, and by extension, would be unaware of any tax-free profits stored abroad and brought back home. The amendment in large part aims to change that by targeting passive Non-Financial Entities (NFEs), which are typically tasked with holding high-value assets such as stocks, property, and by themselves are not involved in conducting any profit-generating activities. Because NFEs aren’t obligated to report who the ultimate beneficiaries are, they are capable of legally hiding massive sums of value in Hong Kong bank accounts without their home government’s knowledge.
The amendments also target offshore companies in Hong Kong that source their income from outside the city. Thanks to Hong Kong’s tax regime that does not tax foreign-sourced income, capital gains or dividends, offshore companies in the city can send profits out of the city tax-free. If a shareholder’s home jurisdiction taxes foreign-sourced income, but is unaware of his foreign accounts, he could successfully transfer those funds home without raising suspicion. By exposing the link between shareholders and their foreign holdings, governments of these tax residents can be informed and proceed to levy the proper taxes according to local tax regulations.
Implications for Companies Making Offshore Profits Tax Exemption Claims
Offshore NFEs in Hong Kong until now have been able to take advantage of the city’s tax regime on foreign-sourced profits to pay zero taxes. With this amendment, that era seems to be coming to an end. Going forward, companies will have to reevaluate how they can maximize their tax efficiency rather than avoiding paying completely.
On the other hand, banks in Hong Kong will be obligated to identify the ultimate beneficiaries of companies with accounts in Hong Kong held either by individuals who are tax residents of reportable jurisdictions, or passive NFEs whose controllers are tax residents of reportable jurisdictions.
How to Prepare for CRS 2.0
If you are a foreign owner of financial accounts in Hong Kong, you may need to take action to ensure your company remains compliant when the new amendments take effect.
1. Confirm your tax residency status with your bank
Companies with financial accounts in Hong Kong should proactively confirm their tax residency status with their bank, and ensure their self-certification forms are supported by documentation proving their status, such as proof of address and employment contracts.
2. Confirm the CFC status of your offshore Hong Kong company
Learn if your home jurisdiction deems your offshore Hong Kong company as a controlled foreign company (CFC), and if you could be liable to pay for taxes for foreign-sourced profits.
3. Revisit your company’s tax strategy
Paying zero taxes on your profits may soon be a thing of the past, but it may still be possible to maximize tax efficiency by restructuring your company’s tax strategy. Despite the new regulations, Hong Kong remains as a prime location to set up an offshore company and should be a consideration for any effective tax strategy. If you have concerns about your Hong Kong company’s status in light of these new changes, drop us a message and we’d be happy to answer your questions!
