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Shenzhen-Hong Kong Stock Connect To Launch Dec 5

by Mary Swire, Lowtax.net, Hong Kong
29 November, 2016

The Shenzhen-Hong Kong Stock Connect (Shenzhen Connect) will be launched on December 5, following approval from Hong Kong's Securities and Futures Commission (SFC) and the China Securities Regulatory Commission (CSRC).

Hong Kong's Government welcomed the launch of Shenzhen Connect, stating that it "will help further to promote the opening up of Mainland China's capital markets as well as the internationalization of the renminbi (RMB). It will also reinforce Hong Kong's position as an international financial center and a premier offshore RMB hub."

"The expanded trading link will further strengthen mutual access between the Mainland and Hong Kong stock markets. Similar to the arrangements for Shanghai-Hong Kong Stock Connect (Shanghai Connect), the two regulators have established mechanisms to protect the integrity of both markets," SFC's Chairman Carlson Tong added.

The new stock link is similar to Shanghai Connect, which was launched in November 2014. Shenzhen Connect will enable Mainland investors to trade stocks listed on the Hong Kong Exchange (SEHK) directly through the Shenzhen Stock Exchange (SZSE), and for Hong Kong and overseas investors to trade stocks listed on the SZSE directly through the SEHK.

Information already issued by the regulators has provided a summary of the applicable tax framework for investments through Shenzhen Connect. For example, Hong Kong and overseas investors will be subject to Mainland fees, including a transfer fee of 0.002 percent on both sides of a transaction, and a 0.1 percent stamp duty only on the seller's side, payable at the same time as the consideration for the transaction.

With regard to Chinese securities acquired by Hong Kong and overseas investors, cash dividends and bonus issues to investors will be subject to dividend withholding tax at a standard rate of 10 percent. A resident of a country that has entered into a double taxation agreement (DTA) with China may be eligible for a lower dividend tax rate.

As for trading through Shanghai Connect, Hong Kong and overseas investors are exempted from paying both capital gains tax and business tax when they trade through Shenzhen Connect, particularly as the China-Hong Kong DTA confirms that capital gains derived by a Hong Kong resident from the sale and purchase of shares in a Mainland-listed company will be taxable only in Hong Kong (where there is no such tax).

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