China Regulatory Brief: IIT on Equity Transfer Income, ETF Stamp Duty Exemption, Financial Support for Trust Companies

December 15, 2014 Posted by China Briefing Reading Time: 4 minutes

China Clarifies IIT Rules on Income from Equity Transfer

On December 7, China’s State Administration of Taxation (SAT) released the “Trial Administrative Measures on Individual Income Tax on Income from Equity Transfer (SAT Announcement [2014] No.67),” which will take effect on January 1, 2015. According to the Measures, taxpayers shall pay the individual income tax (IIT) on income derived from equity transfer based on the “income from transfer of property” category stipulated by China’s IIT law. It will be taxed at a rate of 20 percent. In order to file a tax declaration, the tax payer will need to present all relevant documents (including the equity transfer contract, assessment reports of the property value and ID) to the local tax authorities.

Hong Kong to Exempt ETF Stamp Duty

The Hong Kong government recently announced its 2014-15 Budget which proposed the exemption of stamp duty for the transfer of shares or units of exchange traded funds (ETFs). The ETF stamp duty exemption is expected to boost Hong Kong’s ETF market and offer more business opportunities for market practitioners. The budget will be introduced into the Legislative Council on December 17, 2014. Currently, approximately 40 percent of Hong Kong investors need to pay ETF stamp duty.

According to the Hong Kong Exchanges and Clearing (HKEx) data, 121 ETFs have been listed on the Hong Kong bourse provided by 26 international and mainland ETF fund managers by October this year. The average daily turnover of the Hong Kong ETF market increased from HKD2.4 billion in 2010 to HKD4.34 billion in October, 2014, making Hong Kong one of the largest ETF centers in the Asia-Pacific region.

China Provides Financial Support to Trust Companies

On December 12, the China Banking Regulatory Commission and the Ministry of Finance jointly announced the plan to establish a protection fund to support troubled trust companies that are unable to make repayments. Each trust company is required to contribute one percent of their net assets to the fund. The protection fund can also be used to invest in bank deposits, government bonds and interbank lending. By the end of September, 2014, 68 trust companies have been established with shareholders’ equity of RMB 288 billion. However, repayment risks are increasing since 2013 as the country is experiencing an economic slowdown.

China Cancels Pre-approval Requirements for Financial Institutions

China’s State Administration of Foreign Exchange (SAFE) recently released the “Circular on the Change of Administrative Policies for Financial Institutions Entering the Inter-bank Foreign Exchange Market (Hui Fa [2014] No.48),” which will take effect on January 1, 2015. The Circular stipulates that money brokerage companies (including their branches) established based on the approval of the banking regulatory authorities may carry out foreign exchange brokerage business such as RMB against foreign currencies derivatives trading, trading between foreign currencies and foreign exchange lending. SAFE no longer requires a pre-approval qualification license. Further, financial institutions shall file their internal operational procedures and risk management systems with the China Foreign Exchange Trade System (CFETS) for the record.

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