Since its launch in 2002, the Qualified Foreign Institutional Investor (“QFII”) program has been the principal means for foreign investors to invest directly in the securities markets of Mainland China. However, uncertainty regarding the application of China’s tax laws to QFIIs and their investments has complicated QFII operations and potentially discouraged prospective entrants to the market.

Recently, it has been reported that the China Securities Regulatory Commission (“CSRC”), China’s primary securities regulator, and the State Administration of Taxation have reached an agreement regarding the application of China’s income tax laws to QFIIs that will enlarge the basis of assessing income tax on QFIIs. However, the final details of the agreement have not yet been published, so foreign investors must wait for greater clarity while currently factoring the anticipated changes into their plans.

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