Professor K C Chan who is the Secretary for Financial Services in Hong Kong, signed the Fourth Protocol to the ‘Arrangement for the Avoidance of Double Taxation and Prevention of Tax income Evasion’ in Hong Kong this week.
Professor Chan stated: ‘we are very pleased to sign the Fourth Protocol with the Mainland to facilitate clear implementation of the relevant arrangement. This hopefully will clarify the conditions under which an investment fund would qualify for Hong Kong resident status, therefore giving certainty to their application of tax avoidance arrangements. This will be beneficial to the actively promoted asset management businesses in Hong Kong, and will also help strengthen our country’s status as an international finance centre.’
Concerning the capital accruing from the sale and purchase of shares in listed companies, everyone seems to agree to add a new provision to clearly set out the tax liabilities of residents of both sides. According to the provision, the gains derived by a Hong Kong resident from the sales and purchase of shares in a Mainland listed company shall be taxable only in Hong Kong.
This is also applicable to the gains derived by a Hong Kong resident from the sale and purchase, under the Shanghai-Hong Kong Stock Connect, of A-listed shares listed on the Shanghai Stock Exchange. Meanwhile, the provision also states that the arrangement of such a tax liability will be applicable to those investment funds complying with the requirements that are set out in the provision.