Introduction

The Shanghai-Hong Kong Stock Connect (Stock Connect Scheme) is a pilot programme for establishing mutual stock market access between Mainland China and Hong Kong. For a comprehensive overview and analysis of the unresolved issues in the rules and operations of the Stock Connect Scheme, please click here.

PRC Capital Gains Policy of the Stock Connect Scheme

In an announcement made on 14 November 2014, the Ministry of Finance of the People's Republic of China (PRCMOF) has clarified the PRC’s capital gains tax (CGT) policy in respect of the Stock Connect Scheme. Hong Kong and foreign investors dealing in securities listed on the Shanghai Stock Exchange (SSE), both corporate and individual, will be temporarily exempt from CGT from SSE securities bought and sold via the Stock Connect Scheme from 17 November 2014. Correspondingly, PRC individual investors who buy and sell shares listed on the Hong Kong Stock Exchange through the Stock Connect Scheme will be temporarily exempt from personal income tax for three years, from 17 November 2014 to 16 November 2017.

The PRCMOF has also exempted qualified foreign institutional investors (QFIIs) and renminbi qualified foreign institutional investors (RQFIIs) from PRC corporate income tax from 17 November 2014. This provides clarity on a subject that has been a cause of much uncertainty since the inception of both the QFII and RQFII programs, with some more assertive RQFIIs removing provisions for related PRC withholding tax earlier this year. However, investment gains by QFIIs and RQFIIs before 17 November 2014 will be subject to such PRC CGT.

Other than as set out above, no end date has been given for these tax exemptions.