Recently, the Ministry of Finance, the State Administration of Taxation and the China Securities Regulatory Commission have jointly issued the Circular on Tax Policies concerning the Pilot Mechanism of the Shenzhen-Hong Kong Stock Connect (the "Circular"), which shall come into force as of December 5, 2016.
The Circular clarifies that gains derived from the price difference by mainland enterprise investors which transfer their investments in stocks listed on the Stock Exchange of Hong Kong Limited ("SEHK") through the Shenzhen-Hong Kong Stock Connect will be included in their total revenues and be subject to enterprise income tax in accordance with the law; and for mainland individual investors, they will be temporarily exempt from individual income tax from December 5, 2016 to December 4, 2019. According to the Circular, dividend income obtained by mainland enterprise investors will also be included in their total revenues and be subject to enterprise income tax in accordance with the law. In particular, dividends obtained by mainland resident enterprises from holding H-shares for over 12 consecutive months will be exempt from enterprise income tax in accordance with the law. When mainland enterprise investors declare and pay enterprise income tax by themselves, they may apply for a tax credit in accordance with the law, with regard to the income tax on dividends withheld and remitted by non-H-share companies listed on the SEHK. Also, the Circular also provides for some other issues concerning the value added tax and stamp tax.