Capital gains tax on stocks likely
Print Edition
CHINA is planning to levy tax on capital gains derived from trading of domestic securities by foreign fund managers during the five years through November 2014, a move that may result in a large cut in foreign funds.
Qualified Foreign Institutional Investors and Renminbi Qualified Foreign Institutional Investors will be required to pay a 10 percent tax on profits realized from investment in mainland securities between November 17, 2009 and November 16, 2014, the Economic Observer reported yesterday, citing a briefing given to fund managers, custodians and accountants in Beijing on Thursday by the Asset Management Association of China.
Tax authorities in Beijing, Shanghai and Shenzhen will tax gains made by QFII and RQFII funds from investment in equities, mutual funds, warrants and stock index futures. But gains from debt securities investment won’t be taxed.
Multi-asset investments will be treated as equity investments, and taxes on convertible bonds won’t be levied until they are converted, the report said.
Taxes will be levied on individual transactions rather than net gains of multiple trades, according to the report.
China-based Z-Ben Advisors estimated that paying the taxes may require managers of public funds to set aside up to US$3 billion to US$4 billion from investment funds with around US$30 billion in net asset value.
“The move could seriously discourage investors’ interest in QFII-backed funds for the remainder of the year,” the firm said in an e-mailed note.
“But in the longer term, tax certainty is better for everyone,” it added.
Under current regulations, a QFII participant is exempt from the 5 percent business tax on investment gains but is required to pay a 10 percent corporate income tax on dividends and bonuses gained in China.
In November, China granted a temporary tax waiver on capital gains for an unspecified period to QFII and RQFII investors as well as international investors buying mainland shares via the Shanghai and Hong Kong stock connect in a bid to boost foreign presence in the country’s capital market.
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