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CHINA’S regulators plan to collect capital gains taxes from foreign money managers that invested in the country’s stock markets during the five years through November 2014.
Authorities plan to collect the 10 percent tax on Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) funds, according to sources with knowledge of the matter. The levy means managers of public QFII funds may need to claw back US$1.2 billion, an amount that could triple depending on how the levy is calculated, according to research firm Z-Ben Advisors Ltd.
The plan brings further clarity to China’s tax policy after authorities said three months ago that QFII and RQFII funds, along with foreign investors using the Shanghai-Hong Kong exchange link, would get a temporary tax waiver for trades starting Nov. 17, 2014.
MSCI Inc., which kept Chinese mainland shares out of its global indices last June, said confusion over tax rules was one of investors’ biggest concerns as the world’s second-largest economy gives foreigners unprecedented access to its markets.
The capital gains tax policy “has caused a lot of misunderstanding and confusion for many years,” said Aaron Boesky, the Hong Kong-based chief executive officer at Marco Polo Pure Asset Management.
While China’s laws had suggested foreign equity investors were subject to a capital gains tax, the government has never collected it, according to PricewaterhouseCoopers.
Confusion over the policy since China’s quota system for a limited number of foreign institutions began more than a decade ago has led to a mishmash of compliance, with some setting aside cash for the liability and others anticipating it won’t be implemented.
Taxes will be collected on individual transactions, and funds will be barred from consolidating gains and losses over several trades. The levies won’t apply to debt securities, while taxes on convertible bonds will only be collected after the debt is converted, the sources said. (SD-Agencies)
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