Ministry of Finance, State Administration of Taxation and China Securities Regulatory Commission, Circular on Tax Policies Relevant to the Pilot Project for the Mechanisms to Provide Mutual Trading Access Between the Shanghai and Hong Kong Stock Markets

The income derived from the price differential when investors from the mainland transfer stocks listed on the Stock Exchange of Hong Kong that they invested in through the Shanghai-Hong Kong Stock Connect shall be exempt from individual income tax but be subject to enterprise income tax.

The income derived from the price differential when enterprise investors from the mainland transfer stocks listed on the Stock Exchange of Hong Kong that they invested in through the Shanghai-Hong Kong Stock Connect shall be counted as part of their total income and be subject to enterprise income tax in accordance with the law.

When individual investors or securities investment funds from the mainland earn dividends on H shares and non-H shares listed on the Stock Exchange of Hong Kong that they invested in through the Shanghai-Hong Kong Stock Connect, the H share companies and China Securities Depository and Clearing Corporation Limited shall, respectively, withhold individual income tax thereon at the rate of 20%.

The dividend income derived from the stocks listed on the Stock Exchange of Hong Kong invested in by enterprise investors from the mainland through the Shanghai-Hong Kong Stock Connect shall be counted as part of their total income and be subject to enterprise income tax in accordance with the law (Section One).

The income derived from the price differential when Hong Kong market investors (both enterprise and individual) transfer A shares listed on the Shanghai Stock Exchange that they invested in shall be exempt from income tax provisionally.

When Hong Kong market investors (both enterprise and individual) earn dividends on A shares listed on the Shanghai Stock Exchange that they invested in, the listed companies shall withhold income tax thereon at the rate of 10% (Section Two).

The income derived from the price differential when Hong Kong market investors (both entity and individual) trade A shares listed on the Shanghai Stock Exchange through the Shanghai-Hong Kong Stock Connect, the income derived from the price differential when individual investors from the mainland trade stocks listed on the Stock Exchange of Hong Kong through the Shanghai-Hong Kong Stock Connect and the income derived from the price differential when entity investors from the mainland trade stocks listed on the Stock Exchange of Hong Kong through the Shanghai-Hong Kong Stock Connect shall be exempt from business tax provisionally or in accordance with the current policy as in the case of entity investors from the mainland.

When Hong Kong market investors trade, succeed to or bestow A shares listed on the Shanghai Stock Exchange through the Shanghai-Hong Kong Stock Connect, they shall pay securities (stock) transaction stamp duty thereon in accordance with current mainland tax system provisions. When mainland investors trade, succeed to or bestow stocks listed on the Stock Exchange of Hong Kong through the Shanghai-Hong Kong Stock Connect, they shall pay stamp duty thereon in accordance with current tax laws of the Hong Kong Special Administrative Region (Section Three).

Related legislation: Circular on the Issue of Provisionally Exempting the Proceeds Derived in China by QFIIs and RQFIIs from the Transfer of Stocks and Other Such Equity Investment Assets from Enterprise Income Tax