Guidance issued by the authorities in China is intended to clarify preferential tax treatment available with respect to certain share trades on the Shenzhen-Hong Kong Stock Connect.
The Shenzhen-Hong Kong Stock Connect cross-border share trading mechanism began operations in early December 2016. This system complements the Shanghai-Hong Kong Stock Connect mechanism (as in place since November 2014), and enables international investors to trade selected A-shares, listed on the Shenzhen Stock Exchange via the Hong Kong Stock Exchange, as well as similar treatment for qualified mainland investors trading on the exchanges.
To facilitate cross-border investment activity, and in a manner similar to the system established for the Shanghai-Hong Kong Stock Connect, preferential Chinese tax treatment was clarified when China’s Ministry of Finance, State Administration of Taxation, and China Securities Regulatory Commission jointly issued Circular 127 (November 2016) with respect to the temporary exemptions from Chinese income taxes and value added tax (VAT) for trading gains arising to foreign investors on Shenzhen Stock Exchange-listed shares, when transacted through Shenzhen-Hong Kong Stock Connect.
Conversely, temporary income tax and VAT exemptions are also provided for the trading gains of Chinese investors arising from Hong Kong Stock Exchange-listed shares, when transacted through Shenzhen-Hong Kong Stock Connect.
Read a January 2017 report prepared by the KPMG member firm in China: Shenzhen-Hong Kong Stock Connect – Transaction tax treatment clarified
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