China may waive dividend tax on Connect

Bloomberg

China is considering a proposal to exempt individual investors from paying dividend taxes on Hong Kong stocks bought via Stock Connect, according to people with knowledge of the matter.

Regulators including the China Securities Regulatory Commission and the State Taxation Administration are reviewing a plan submitted by Hong Kong to waive the 20 percent tax on dividends from Hong Kong stocks bought via the link that connects to Shanghai and Shenzhen, the people said.

The proposal aims to avoid double taxation and align fairer arrangements for investors both in Hong Kong and China, the people added.

Hong Kong has no tax on dividends.

A final decision is still pending and there's no definite timeline to implement, the people said.

The proposal comes as Hong Kong strives to revive its market after a prolonged downturn in initial public offerings and trading volumes. Activity has picked up recently after the CSRC last month issued a series of supportive measures, including expanding the scope of the Stock Connect.

The Hang Seng China Enterprises Index rose 1.6 percent in Hong Kong yesterday, snapping a two-day decline.

SFC chief executive Julia Leung Fung-yee said this week that Hong Kong is looking to implement the changes within this year.

An average of HK$31 billion a day traded via southbound link in the first quarter, down 17 percent from a year earlier, according to the HKEX quarterly report. HKEX's first quarter profit slumped 13 percent year-on-year, and its share price is still down 53 percent from early 2021.