China Will Shortly Announce Tax Rules for Stock Link

Chinese authorities are close to outlining taxation rules for investors who buy mainland shares through the exchange link with Hong Kong, the city’s secretary for financial services said.

“We will see an announcement within a very short time,” K.C. Chan told reporters today. “That will give investors a clear understanding in taxation when investing through the stock connect.”

Whether profits on Chinese equities will be subject to capital gains tax is one of the biggest remaining questions for investors and brokers after regulators today announced a Nov. 17 start date for trading through the Shanghai-Hong Kong link. While China’s existing laws suggest foreign equity investors should pay a 10 percent levy, the government has never collected the tax, according to PricewaterhouseCoopers.

“Our members don’t know whether there’s going to be a capital gains tax or not on this, and if there is one, it’s really down to them to collect it, and there’s no mechanism really put in place at this point,” Mark Austen, chief executive officer of the Asia Securities Industry & Financial Markets Association, said on Bloomberg Television. “Right now, there’s a lot of uncertainty around that.”

For investors based on the mainland, China’s personal-income laws stipulate a 20 percent tax, though authorities have exempted them from the levy since 1994 to promote development of the stock market.

Z-Ben Advisors Ltd. expects an annoucement on the tax rules for foreign investors after markets close today, according to Jesse Lazarus, an analyst at the Shanghai-based research firm.

A lack of clarity would “deter some investor interest,” Lazarus said today. “It’s a very significant issue.”

Scott Sapp, a spokesman at Hong Kong Exchanges & Clearing Ltd., declined to comment, referring the request to Chinese authorities. Phone calls to the general office of the State Administration of Taxation in Beijing went unanswered.

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