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China Plans To Revamp Regulations And Tax Rules For QFIIs

by Mary Swire, Tax-News.com, Hong Kong

30 December 2004


China is planning to relax regulations and clarify tax rules for foreign institutional investors over the coming months, as the authorities attempt to generate fresh interest in the country’s stock markets.

According to a report in the South China Morning Post, flagging sentiment in China’s markets from domestic investors, combined with record holdings of foreign currency reserves which reduce the risk of capital flight have prompted the government to find ways of making regulations more attractive to qualified foreign institutional investors (QFIIs).

According to the SCMP, among the proposed changes are a shortened capital lock-up period and the removal of restrictions on QFIIs seeking to open sub-accounts for clients lacking a QFII license.

In addition, clarification of the tax rules for QFIIs - identified as the greatest unresolved issue for foreign investors - is also likely to be announced during the first quarter of 2005.

QFIIs have complained that the current tax regime is marred by a lack of certainty over government policy in the area of taxation, making it difficult for foreign firms to comply with rules governing annual reports.

The report suggests that under changes being considered by the regulators, QFIIs will be afforded the same tax treatment as domestic fund managers, although this will make them liable for stamp duty and capital gains tax.


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