Posted inRegulation

Hong Kong China double taxation

Hong Kong and mainland China have agreed to exempt Hong Kong-based investors from double taxation on capital gains derived from investments in Chinas stock markets.

According to the new provision, gains derived by a Hong Kong resident from investments in mainland-listed companies will be taxable only in Hong Kong, the Financial Services and the Treasury Bureau (FSTB) said.

This also will be applicable to the investments made in A-shares listed on the Shanghai Stock Exchange through the Shanghai-Hong Kong Stock Connect. 

“[The new provision] clarifies the conditions under which an investment fund would be qualified for Hong Kong resident status, thus giving certainty to investment funds’ application of the tax avoidance arrangements,” said K C Chan, the secretary for financial services and the treasury in the Hong Kong government.

“This will be conducive to actively promote the asset management businesses in Hong Kong, and will in turn help strengthen Hong Kong’s status as an international financial centre,” Chan added. 

The Stock Connect was launched in November to provide offshore investors access to mainland markets.

A survey by Hong Kong Fund Investment Association conducted in December showed the progaramme did not meet early market expectations due to investors’ concerns over technical, legal and tax issues.

Despite this, the same survey also found that more than half of the respondents were positive on the potential of the Stock Connect this year. 
The new rule on double taxation will take effect after the completion of ratification procedures by both countries. The FSTB did not specify a time frame.
The proposed double taxation change is one in a series of capital market reforms that Chinese authorities have been making to attract overseas investments. 
Recently, China’s regulators removed the $1bn investment ceiling on its QFII (Qualified Foreign Institutional Investor) programme, which has been the primary channel for overseas fund management firms investing in mainland markets. 
Regulators are now working on linking the Shenzhen and Hong Kong exchanges.

Part of the Mark Allen Group.