The Shanghai-Hong Kong Stock Connect (Stock Connect), a cross-border stock trading pilot program, launched this week. Stock Connect links the Shanghai Stock Exchange (SSE) with Hong Kong Exchanges and Clearing Ltd. (HKEx). Almost 600 companies traded on the SSE and nearly 300 companies trading on the HKEx have been approved for the pilot program. Going forward, it is expected that regulators will consider expanding the list of eligible companies and relaxing trading quotas.
Stock Connect must consider the different tax rules applied in Hong Kong and mainland China. Regulators from mainland China issued guidance to address these issues. This guidance sets forth policies with respect to income tax (for mainland Chinese corporate investors, mainland Chinese individual investors, mainland Chinese securities investment funds, and Hong Kong investors); business tax; and stamp duty. Matters that are not addressed by this guidance will be determined according to existing tax rules in Hong Kong and mainland China.
More information about Stock Connect and the tax guidance can be found here.