Shanghai And Hong Kong Pass Or Exempt From Capital Gains Tax

Shanghai and Hong Kong through mechanism is expected to start in October 27th.

According to the existing regulations, Hongkong does not impose capital gains tax. But for foreign institutional investors trading Chinese stocks, China has imposed a 10% capital gains tax, but so far the Chinese government has been temporarily exempt from it.

"We get a lot of oral guarantees without tax, but they are not formally determined," an industry executive attending a high-level meeting with the China Securities Regulatory Commission said, "uncertainty is worrying. "

According to people familiar with the matter, CSRC officials privately stated at a meeting of investors in Beijing two weeks ago and a similar meeting in Shenzhen last month that China would not impose capital gains tax on mainland stocks through Hong Kong and Shanghai.

Another insider said the Hongkong securities and Futures Commission said at another meeting that China's capital gains tax is not applicable to the Shanghai Hong Kong through mechanism.

According to people familiar with the matter, the final decision is not only made by the China Securities Regulatory Commission, but also involves several other government agencies. It is not clear at the moment what the final decision procedure is.

One insider said the CSRC was worried that if capital gains tax was imposed, it would reduce the scale of potential transactions between Shanghai and Hong Kong. The SFC and the State Administration of foreign exchange have different opinions, and the safe tends to levy taxes.

Another insider said the country Taxation The General Administration also took part in the relevant discussions, but the position of the IRS was not yet clear.

Chinese government officials did not respond to requests for comment. Hongkong regulators did not comment. As the matter has not yet been disclosed, people familiar with the matter requested anonymity.

At present, the tax issue of A share trading is the focus of overseas institutional investors. For example, through Shanghai and Hong Kong through investment related A shares, listed companies dividends and Stock offering How does the dividend tax be levied, and whether the tax on capital gains tax is exempt from the sale of A shares?

Since the launch of qualified foreign institutional investors (QFII) 11 years ago and the introduction of RMB qualified foreign institutional investors (RQFII) three years ago, capital gains tax has been the sword of Damour, who is hanging on the head of foreign institutions.

The reason for its long-standing pending is, on the one hand, the different types of balance. Investor The interests are taken into account, for example, domestic and overseas investors. On the other hand, there are different arrangements for tax transactions similar to stock transactions in the bilateral tax treaties signed between China and overseas countries and regions. In some cases, China has no direct taxation power.

Since 2003, regulators have not explicitly stated whether capital gains from overseas institutions such as QFII are taxed. The uncertainty of the tax system has always been one of the concerns of QFII investors. It will also be one of the major concerns for overseas investors to enter the market under the Shanghai and Hong Kong linkage mechanism. At present, quite a number of QFII institutions and RQFII managers have withheld the capital gains tax according to the 10% default ratio of the industry.

Therefore, if Hong Kong and Hong Kong is exempt from capital gains tax, it will undoubtedly stimulate investors' enthusiasm.