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Tax Treaty Changes Boost HK-Shanghai Stock Trading

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

09 April 2015


Hong Kong Exchanges and Clearing Limited's securities market turnover has risen to a record high, and the recent signing of the fourth Protocol to the China-Hong Kong double taxation agreement (DTA) will further boost trading activity through the Shanghai-Hong Kong Stock Connect (SHKSC) program.

Hong Kong Exchanges and Clearing Limited's (HKEx) securities market turnover rose to HKD252.4bn (USD32.5bn) on April 8, far exceeding the previous record of HKD211bn set on October 3, 2007, as total daily trading through SHKSC surged to RMB29.9bn (USD4.8bn), its best level since its launch in November last year.

On the same day, the market capitalization of Hong Kong-listed shares also reached a record high, climbing to HKD28.6 trillion, and a record 3.1m trades were concluded in the securities market (the previous high was 1.9m on March 31 this year).

"Stock Connect was one of the catalysts for today's record high securities market turnover," said HKEx Chairman C K Chow. "The program has given us another source of market liquidity that was enhanced by the Mainland authorities' recent clarification of policies regarding institutional investor participation in Stock Connect."

"Our securities market provides a good investment outlet for Mainland funds and is an excellent way for Mainland investors to diversify their portfolios with offshore exposure," HKEx Chief Executive Charles Li added. "We are in the midst of a profound structural change: the gradual but accelerating opening of Mainland China's financial markets. Stock Connect is less than five months old and there's much more to come."

Signed on April 1, the DTA's fourth Protocol clarifies the conditions under which an investment fund would qualify for Hong Kong resident status. This provides certainty to investment funds' application of their tax arrangements, and confirms that gains derived by a Hong Kong resident from the sale and purchase of shares in a Mainland-listed company will be taxable only in Hong Kong (where there is no such tax).

The latter confirmation is applicable, for example, to gains derived by a Hong Kong resident from the sale and purchase of A shares listed on the Shanghai Stock Exchange under SHKSC. It will therefore also be applicable to those investment funds qualifying for Hong Kong resident status.

TAGS: capital gains tax (CGT) | tax | investment | double tax agreement (DTA) | investment funds | equity investment | China | offshore | agreements | stock exchanges | Hong Kong

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