On 5 December 2016 the Shenzhen-Hong Kong Stock Connect cross-border share trading mechanism commenced operation. This complements the Shanghai-Hong Kong Stock Connect mechanism, in place since November 2014, and enables international investors to trade selected A-shares, listed on the Shenzhen Stock Exchange (SSE), via the Hong Kong Stock Exchange (HKSE). It also allows qualified mainland investors to trade in HKSE-listed shares via the SSE.
To facilitate cross-border investment activity, and in a similar manner to Shanghai-Hong Kong Stock Connect, preferential Chinese tax treatments have been clarified. On 5 November 2016, Ministry of Finance, State Administration of Taxation and China Securities Regulatory Commission issued Circular 127 announcing temporary exemptions from Chinese income taxes and Value Added Tax (VAT) for trading gains arising to foreign investors on SSE-listed shares, where transacted through Shenzhen-Hong Kong Stock Connect. Going the other direction, temporary income tax and VAT exemptions are also provided for the trading gains of Chinese investors arising from HKSE-listed shares, where transacted through Shenzhen-Hong Kong Stock Connect.