Inland Revenue Ordinance (Amendment of Section 50A) Notice 2020

The Inland Revenue Ordinance (Amendment of Section 50A) Notice 2020 (“Amendment Notice”) came into operation on 1 January 2021. It expands the definition of “controlling person” under section 50A of the Inland Revenue Ordinance (Cap. 112) (“IRO”) by removing the 25% threshold previously applicable to partnerships and trusts. The expanded definition of “controlling person” will apply to reporting financial institutions’ reports due for mid-2022 (for information of year 2021) and thereafter.

Prior to the amendment, controlling persons of a partnership under the IRO for the purpose of automatic exchange of financial account information in tax matters refer to, among others, those individuals who are entitled to or control more than 25% of the capital/profits/voting rights of/in that partnership (see section 50A(6)(b) and (7) of the IRO). After the amendment, all individuals who exercise control over a partnership will fall within the definition of controlling persons of that partnership, regardless of the stake held in terms of capital/profits/voting rights of/in that partnership.

In relation to trusts, while the 25% threshold still exists before the amendment (see section 50A(6)(c)(i) and (7) of the IRO), the Inland Revenue (Amendment) (No. 2) Ordinance 2019 has already amended the definition of controlling persons of trusts to the effect that all controlling persons as defined by the Common Reporting Standard, regardless of the stake held, have to be identified by the reporting financial institutions (see section 50A(6)(c)(ii) to (vi)). The amendment to the threshold applicable to a trust under the Amendment Notice is made for the sake of completeness to align with section 50A(6)(c)(ii) to (vi).

For an entity that is a corporation, the specified percentage relating to the identification of controlling persons remains unchanged at 25% (see section 50A(6)(a) and (7) of the IRO).

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