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Hong Kong information exchange and U.S. trust reporting

Hong Kong has a financial account information exchange framework and a FATCA agreement in force. IRS reporting rules are also relevant to U.S. citizens who own or receive distributions from foreign trusts.

Hong Kong account information exchange

Hong Kong's Automatic Exchange of Financial Account Information framework uses the Common Reporting Standard. Under that standard, financial institutions identify accounts held by tax residents of reportable jurisdictions and accounts held by passive non-financial entities whose controlling persons are tax residents there. They apply due diligence procedures and furnish required account information to Hong Kong's Inland Revenue Department annually.[3]

The account holder's tax residence is relevant to whether an account is reportable. Hong Kong describes tax residence generally by reference to an individual's physical presence or stay, while an entity's residence can depend on its place of incorporation or central management and control. Financial institutions may request self-certification of personal information, including tax residence, to identify reportable accounts.[3]

The exchange is conditional on an arrangement with the relevant reportable jurisdiction that provides a basis for exchange. Hong Kong exchanges information on a reciprocal basis with appropriate partners. The scope of the reporting framework therefore depends on reportable-jurisdiction status and the applicable exchange arrangement.[3]

Domestic legislation establishes the framework, and later legislation expanded the list of reportable jurisdictions. The account level steps are due diligence, collection, and annual furnishing of information.[3]

FATCA agreement status

The U.S. Treasury table lists Hong Kong under a Model 2 intergovernmental agreement, with status In Force. Treasury explains generally that FATCA calls for foreign financial institutions to report information to the IRS about accounts held by U.S. taxpayers or certain foreign entities with substantial U.S. ownership interests.[4]

Financial institutions may comply with FATCA through FATCA regulations or through intergovernmental agreements treated as in effect in their jurisdictions. FATCA reporting by financial institutions does not by itself determine a U.S. citizen's individual filing obligations.[4]

Trust ownership and register information

Hong Kong's financial account framework covers due diligence and reporting, while U.S. rules cover foreign trust filings. The financial account framework refers to controlling persons of passive non-financial entities for due diligence purposes, but does not establish a general trust registration requirement.[3]

IRS reporting for U.S. trust owners and beneficiaries

The IRS identifies several information reporting regimes that can relate to U.S. persons dealing with foreign trusts. These regimes include Forms 3520 and 3520-A, Form 8938, and FinCEN Form 114, known as the FBAR. A U.S. citizen falls within the IRS definition of a U.S. person.[6]

Form 3520

Form 3520 is an annual return for specified transactions with foreign trusts and receipt of certain foreign gifts. Filing situations include being treated as the owner of any part of a foreign trust's assets under the grantor trust rules. They also cover a U.S. person who receives a distribution from a foreign trust during the tax year. The form can therefore apply to an owner or beneficiary when the relevant conditions are met.[6][7]

Form 3520-A

Form 3520-A is the annual information return for a foreign trust with a U.S. owner. The IRS says a U.S. person treated as an owner under the grantor trust rules must ensure that the foreign trust timely files a complete and accurate return and provides annual statements to U.S. owners and beneficiaries. If the trust does not file, the U.S. owner may attach a substitute Form 3520-A to the owner's timely filed Form 3520, together with required statements.[6]

Form 8938 and FBAR

The IRS says Form 8938 may be required to report specified foreign financial assets when the total value of assets in which the person has an interest exceeds applicable reporting thresholds. Separately, a financial interest in or signature authority over a foreign financial account may bring an annual FBAR filing requirement. These regimes are distinct from the foreign trust forms.[6]

A U.S. owner is generally taxed on trust income under the grantor trust rules, and the foreign trust provides an owner statement with information about income to report on the U.S. return. A U.S. beneficiary generally includes distributions from a foreign non-grantor trust that carry out distributable net income in income. Distributions exceeding current-year distributable net income may be treated first as undistributed net income until that income is exhausted, and then as principal, subject to applicable rules. A foreign trust provides beneficiary statements with information about the taxability of distributions.[6]

Questions and answers

Does Hong Kong describe automatic exchange as applying to every account?

No. Reporting covers accounts of tax residents of reportable jurisdictions and passive non-financial entities with controlling persons resident in those jurisdictions. Hong Kong says an exchange arrangement must be in place with the jurisdiction concerned.[3]

What FATCA agreement model does Treasury list for Hong Kong?

Treasury lists Hong Kong under Model 2 and gives the status as In Force.[4]

When can Form 3520 relate to a U.S. citizen beneficiary?

A U.S. person who receives a distribution from a foreign trust is among the Form 3520 filing situations. The specific filing treatment depends on the facts and applicable instructions.[7]

Who is associated with Form 3520-A?

The form is the annual information return of a foreign trust with a U.S. owner. The IRS says the U.S. person treated as owner must ensure the foreign trust files the return and provides required annual statements.[6]

Can Form 8938 and FBAR apply alongside trust reporting?

The IRS lists both Form 8938 and FBAR among reporting rules that can apply to a U.S. person with foreign trust transactions, ownership, or distributions. Form 8938 concerns specified foreign financial assets above applicable thresholds, while FBAR may apply to a foreign account in which the person has a financial interest or signature authority.[6]

Related glossary terms

  • Section 6048: Section 6048 sets information reporting rules for certain foreign trusts. Its parts cover notice of events, U.S. owner duties and beneficiary distributions.
  • Participating foreign financial institution: The IRS describes a participating foreign financial institution as an FFI that reports U.S. account holders who are specified U.S. persons under FATCA.
  • Foreign grantor trust: A foreign grantor trust is a foreign trust treated as owned by a grantor, often a U.S. person. Ownership brings Form 3520 and Form 3520-A reporting duties.

Related articles and guides

Tools and official documents

  • FATCA agreement lookup: Look up any jurisdiction in the U.S. Treasury FATCA table and see its agreement model and status as the Treasury lists them, with a link to the source.
  • FinCEN Report 114 (FBAR): foreign account reporting: FinCEN Report 114 (FBAR) for U.S. citizens: account definitions, financial interests, signature authority, trust provisions and the filing requirements it sets.
Sources and data notes
  1. Securities and Futures Commission of Hong Kong, Do you need a licence or registration?. https://www.sfc.hk/en/Regulatory-functions/Intermediaries/Licensing/Do-you-need-a-licence-or-registration. Retrieved .
  2. Inland Revenue Department, Government of the Hong Kong Special Administrative Region, Profits Tax. https://www.ird.gov.hk/eng/tax/bus_pft.htm. Retrieved .
  3. Inland Revenue Department, Government of the Hong Kong Special Administrative Region, Automatic Exchange of Financial Account Information. https://www.ird.gov.hk/eng/tax/dta_aeoi.htm. Retrieved .
  4. U.S. Department of the Treasury, Foreign Account Tax Compliance Act: agreements and understandings by jurisdiction. https://home.treasury.gov/policy-issues/tax-policy/foreign-account-tax-compliance-act. Retrieved .
  5. Internal Revenue Service, United States income tax treaties, A to Z. https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z. Retrieved .
  6. Internal Revenue Service, Foreign trust reporting requirements and tax consequences. https://www.irs.gov/businesses/international-businesses/foreign-trust-reporting-requirements-and-tax-consequences. Retrieved .
  7. Internal Revenue Service, Instructions for Form 3520. https://www.irs.gov/instructions/i3520. Retrieved .

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