Exemption For Shanghai-HK Stock Connect
by Mary Swire, Lowtax.net, Hong Kong
18 November, 2014
A joint statement from the Chinese Ministry of Finance, the State Administration of Taxation, and the China Securities Regulatory Commission has confirmed that international investors will, from November 17, 2014, benefit from a three-year exemption from the ten percent withholding tax on capital gains derived from the disposal of Mainland shares.
The exemption clears up doubts over the tax treatment of Mainland share investments made through the new pilot Shanghai and Hong Kong trading link – the Shanghai-Hong Kong Stock Connect (SHKSC) – which allows Hong Kong and overseas investors to trade stocks listed on the Shanghai Stock Exchange directly through the Stock Exchange of Hong Kong, which also began operations on November 17.
Furthermore, by providing an equivalent tax break, it also clarifies the tax treatment of trading by foreign investors directly in Mainland shares through the existing Qualified Foreign Institutional Investor and Renminbi Qualified Foreign Institutional Investor schemes.
At a press conference, the three Chinese authorities emphasized that the SHKSC is intended to strengthen links between the capital markets on the Mainland and in Hong Kong. It is also intended to promote two-way investment, and, thereby, play an important role in the further opening up of China's capital market.
As the SHKSC is a pilot scheme, it was considered appropriate that a temporary three-year exemption be approved by the State Council, so that further consideration can be given in the future to an extension of the exemption to similar schemes developed in China.
Hong Kong's Acting Financial Secretary, K C Chan, welcomed the tax arrangements as providing "clarity to the market and investors." He added that "these arrangements are conducive to the smooth implementation of the SHKSC, further confirming Hong Kong's edge as an offshore renminbi hub."
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