China Tax/Business News Flash

Dec 2015, Issue 48

Tax policy for Mainland-Hong Kong Mutual Recognition of Funds Arrangement is released

On 22 May 2015, the China Securities Regulatory Commission (CSRC) and the Hong Kong Securities and Futures Commission (SFC) officially signed the "Memorandum in Respect of Mainland-Hong Kong Mutual Recognition of Funds (MRF) Arrangement" and released the Provisional Regulations for the Administration of Mutually Recognized Hong Kong Funds, both of which took effect from 1 July 2015. On 18 December 2015, the regulatory institutions in both sides respectively approved the first batch of mutually recognised funds under the MRF arrangement, including three "North-bound" Hong Kong funds and four "South-bound" Mainland funds.

On 14 December 2015, the Ministry of Finance (MoF), the State Administration of Taxation (SAT) and the CSRC jointly released Circular Caishui [2015] No.125 (Circular 125) clarifying the China tax implications for both Mainland China investors as well as Hong Kong market investors under the MRF arrangement. The release of the Circular 125 clarifies the uncertainties in tax treatment for Mainland China investors and Hong Kong market investors who invest in the MRFs and also sets forth the withholding obligations of the relevant institutions. It puts forward higher requirements on the daily operations of both fund managers and their agents.

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