The long-awaited withholding tax policies for QFIIs/RQFIIs capital gains released - mixed feelings?
The Ministry of Finance (MOF), State Administration of Taxation (SAT) and China Securities Regulatory Commission (CSRC) jointly promulgated the tax policies for the scheme of Shanghai-Hong Kong Stock Connect on 14 November 2014, right before its launch on 17 November 2014. At the same time, these authorities also published the circular entitled Caishui  No.79 (Notice 79) to provide long-awaited clarification on withholding tax (WHT) policy for capital gains in relation to QFIIs / RQFIIs schemes.
Under Notice 79, QFIIs /RQFIIs are temporarily exempt from WHT on gains derived from the trading of equity investment assets (including shares) effective from 17 November 2014, which is largely the same as that for the scheme of Shanghai-Hong Kong Stock Connect. Apparently, the aim of Notice 79 is to make the tax treatments for all such investment schemes at par. This should be a tax policy welcomed by QFIIs/RQFIIs.
However, it was also stipulated in Notice 79 that QFIIs and RQFIIs shall be subject to WHT on their capital gains derived before 17 November 2014. This answered a very important question that many QFIIs/RQFIIs have been asking, but it still leaves a number of key tax issues that QFIIs/RQFIIs should consider and the Chinese tax authorities should clarify.
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