Eu savings tax impact on Hong Kong

EU Savings Tax Impact on Hong Kong

Although Hong Kong is not party to the EU savings directive, the following categories of structures will be subject to the EU savings tax directive:-
I	Hong Kong untaxed entities and legal arrangements with a bank account in the savings tax territory. The bank is Paying Agent for the: Trust, governed by local law Trust, governed by foreign law Private Limited Company	Bank is Paying Agent
II	Any of the following Hong Kong entities and legal arrangements if its place of effective management is within the savings tax territory, irrespective of where the bank account is:- Trust, governed by local law Trust, governed by foreign law Private Limited Company	The directors or trustee will have Paying Agent Upon Receipt responsibilities.
III	Any untaxed non-Hong Kong entity or legal arrangement managed from within the savings tax territory with a bank account in Hong Kong will have Paying Agent Upon Receipt responsibilities.	The directors or trustee will have Paying Agent Upon Receipt responsibilities.
IV	An individuals account in Hong Kong managed by an entity, or legal arrangement based within the savings tax territory (including managed discretionary agreements).	The management of the party managing the account will be Paying Agent Upon Receipt.

Individual's Hong Kong Bank Account
Out of scope: An EU-resident individual's bank account in Hong Kong is not subject to EU savings tax if not managed from within the savings tax territory.	Not many EU residents hold bank accounts in Hong Kong because relatively few European banks have established any representation.
In scope by Paying Agent Upon Receipt: (Category IV) An individual's bank account in Hong Kong managed by an entity or legal arrangement within the EU savings tax territory is subject to the savings tax. Responsibility of the Paying Agent Upon Receipt: The entity / arrangement managing the account, as Paying Agent Upon Receipt, applies the savings tax provisions on the beneficial owner. Note: A discretionary mandate by a bank is a legal arrangement. As such, this legal arrangement must act as a Paying Agent Upon Receipt.	For example an portfolio in a Hong Kong bank subsidiary managed by the head office in Gibraltar is subject to the EU savings tax.

Hong Kong Company
Out of scope: A Hong Kong company is omitted from the savings tax directive if it hold its accounts with a bank outside the savings tax territory and its place of effective management is also outside the EU savings tax territory.	For example, a Hong Kong bank account held by a Hong Kong company with Hong Kong directors is out of scope.
In scope by Paying Agent: (Category I) A Hong Kong company is subject to the savings tax if its account is with a bank established in the EU savings tax territory. Responsibilities of Paying Agent: The bank as Paying Agent must *look through* the IBC to the beneficial owner. An interest payment shall be regarded as having been made to, or secured for, the immediate benefit of any individual, who is resident in a Member State other than that of the economic operator as the beneficial owner of the entity or legal arrangement. Beneficial Owner: The identity of that individual shall be established in accordance with the customer due diligence measures provided for in the EU directive on anti money laundering and terrorist financing. The Beneficial Owner of a company is:- any shareholder who owns more than 25% equity of a company, or alternatively, it is the natural person(s) who exercises control over the management of an entity	For example, a Swiss bank account held by a Hong Kong company is in scope Note on nominee shareholders and directors: It is common for offshore trust and company service providers to offer nominee shareholder and director services. Paying Agents must look through the nominee shareholder or director of a company according to the EU money laundering directive. It is inconceivable today that a bank would ignore the “know your client” requirements and accept the nominee as the de facto Beneficial Owner or director.
In scope by Paying Agent Upon Receipt: (Category II) A Hong Kong company is subject to savings tax if the place of effective management is within the savings tax territory, irrespective of where the bank account is held. Note if bank account is within savings tax territory: A Paying Agent (bank) must report to tax authorities of the management's residence on interest payments to a Hong Kong company if it is managed within anothersavings tax territory, no matter who the beneficial owner is. In territories where banks may withhold interest, if the Hong Kong company management does not agree on having its payments reported, the bank must withhold 35% tax, irrespective of who theeventual beneficial owner is. Responsibility of Paying Agent Upon Receipt: Responsibility of Paying Agent Upon Receipt: The management would become Paying Agents Upon Receipt who must identify the beneficial owners. The identity of that individual shall be established in accordance with the customer due diligence measures provided for in the EU directive on anti money laundering and terrorist financing. Beneficial Owner of a company is:- any shareholder who owns more than 25% equity of a company, or alternatively, it is the natural person(s) who exercises control over the management of an entity	For example, A Hong Kong company with bank account in Hong Kong and managed by directors based in Jersey is in scope. Place of Effective Management of an entity, with or without legal personality, shall mean the address where key management decisions are taken that are necessary for the conduct of the entity’s activity as a whole. Where key management decisions are taken in more than one country or jurisdiction, the place of effective management shall be considered to be at the address where most of the key management decisions are taken relating to the assets producing interest payments within the meaning of this Directive;

Hong Kong Trusts
Out of scope: A trust is not subject to savings tax if its place of effective management (trustee) is outside the EU savings tax territory and its account is with a bank outside the savings tax territory.	For example, a Hong Kong trust with account in Singapore and trustee in Singapore is out of scope.
In scope by Paying Agent: (Category I) A Hong Kong trust with trustee outside the savings tax territory is subject to savings tax if it has its account with a bank within the EU savings tax territory. Responsibility of Paying Agent The bank as Paying Agent must *look through* the IBC to the beneficial owner. An interest payment shall be regarded as having been made to, or secured for, the immediate benefit of any individual, who is resident in a Member State other than that of the economic operator as the beneficial owner of the entity or legal arrangement. Beneficial Owner: of a trust is:- where the future beneficiaries have already been determined, the natural person(s) who is the beneficiary of 25% or more of the property; or alternatively it is the natural person(s) who exercises control over 25% or more of the property of a legal arrangement, usually the principal settlor/ founder	For example, a Singapore trust with a bank account in Switzerland is in scope.
In scope by Paying Agent Upon Receipt: (Category II) A Hong Kong trust is within the EU savings tax territory if the trustee is established within the savings tax territory, irrespective of where the bank account is held. The trustee then becomes a Paying Agent Upon Receipt. Responsibility of Paying Agent Upon Receipt: An interest payment shall be regarded as having been made to, or secured for, the immediate benefit of any individual, who is resident in a Member State other than that of the economic operator as the beneficial owner of the entity or legal arrangement. 1. Immediate Beneficiary Entitled to the Payment The Beneficial Owner of a Trust is:- where the future beneficiaries have already been determined, the natural person(s) who is the beneficiary of 25% or more of the property; or alternatively it is the natural person(s) who exercises control over 25% or more of the property of a legal arrangement, usually the principal settlor/ founder 2. Unidentified immediate beneficiary: The amendment takes into consideration that it will be highly unlikely to identify a beneficiary immediately entitled to the payment received. In this case, the principal contributor, i.e. the actual settlor will be deemed the beneficial owner, irrespective if the settlement is irrevocable or not. The logic being that tax liability remains yours until transferred to someone else with a tax liability. 3. Paying Agent Upon Distribution if no principal contributor identifiable: In the event that a principal settlor is not identifiable, e.g. for a deceased settlor, then the structure becomes a Paying Agent Upon Distribution and must apply the savings tax to any individual who becomes entitled to the payment within 10 years.	For example, a Hong Kong trust with account in Hong Kong and trustee based in Jersey is in scope. Foreign trustees: It is allowed for Hong Kong trusts to appointment non Hong Kong trustees, usually related to the settlor. If the trustee is based in the EU savings tax territory, then the trustee becomes a Paying Agent Upon Receipt. Place of effective management of a trust or other legal arrangement shall mean the permanent address of the natural person who has the principal responsibility for the key management decisions relating to the assets of the legal arrangement, in the case of a trust the trustee.

Entity or Legal Arrangement managed within savings tax territory with bank account in Hong Kong

In scope by Paying Agent Upon Receipt: (category III)
An entity or legal arrangement managed within the savings tax territory is subject to the savings tax if it has a bank account in Hong Kong (or anywhere else, for that matter) .

Responsibility of Paying Agent Upon Receipt:
The company management / trustee as Paying Agent Upon Receipt must look through the company / trust to the beneficial owner. An interest payment shall be regarded as having been made to, or secured for, the immediate benefit of any individual, who is resident in a Member State other than that of the economic operator as the beneficial owner of the entity or legal arrangement.

1. Immediate Beneficiary Entitled to the Payment

The Beneficial Owner of a Trust is:-

where the future beneficiaries have already been determined, the natural person(s) who is the beneficiary of 25% or more of the property; or
alternatively it is the natural person(s) who exercises control over 25% or more of the property of a legal arrangement, usually the principal settlor/ founder

2. Unidentified immediate beneficiary:
The amendment takes into consideration that it will be highly unlikely to identify a beneficiary immediately entitled to the payment received. In this case, the principal contributor, i.e. the actual settlor will be deemed the beneficial owner, irrespective if the settlement is irrevocable or not. The logic being that tax liability remains yours until transferred to someone else with a tax liability.

3. Paying Agent Upon Distribution if no principal contributor identifiable:
In the event that a principal settlor is not identifiable, e.g. for a deceased settlor, then the structure becomes a Paying Agent Upon Distribution and must apply the savings tax to any individual who becomes entitled to the payment within 10 years.

For example, a Guernsey trust with bank account in Hong Kong is in scope.

- EU Savings Tax Expert -
Although I regularly consult with the EU Commission, not all my interpretations of the directive have been confirmed by them.