Clarification of tax position of Shanghai-Hong Kong Stock Connect programme and QFIIs/ RQFIIs

Clarification of tax position of Shanghai-Hong Ko...

China Tax Alert - Issue 29, November 2014

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Clarification of tax position of Shanghai-Hong Kong Stock Connect programme and QFIIs/ RQFIIs

On the eve of the scheduled launch of the highly anticipated Shanghai-Hong Kong Stock Connect (Stock Connect) programme on 17 November 2014, the Ministry of Finance (MOF), China Securities Regulatory Commission (CSRC) and the State Administration of Taxation (SAT), acting with State Council’s approval, jointly announced that foreign investors will be temporarily exempt from income tax on capital gains derived from the trading of A-shares under the programme, thereby providing much needed and welcomed tax certainty to investors.  Under Stock Connect, international investors will be able to trade selected Shanghai-listed shares via the Hong Kong Stock Exchange (HKSE), and qualified mainland investors will be able to trade in Hong Kong shares via the Shanghai Stock Exchange (SSE). In another landmark development, the MOF, CSRC and SAT on the same day also announced a temporary capital gains tax exemption for Foreign Institutional Investors (QFIIs) and RMB Qualified Foreign Institutional Investors (RQFIIs) deriving A-share gains on or after 17 November 2014.  However, realised capital gains generated by QFIIs and RQFIIs prior to 17 November 2014 would remain subject to Corporate Income Tax (CIT).   This clarification of the tax position of QFIIs in China is to be applauded as tax uncertainties have somewhat beset the QFII regime ever since its inception in China over 12 years ago.

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