Hong Kong, mainland China tax waivers a ‘win-win’ for capital markets’ development, experts say

The incentives will inject a dose of optimism and confidence in the capital markets, enhance cross-border trading schemes and boost the yuan, tax experts say

Tax deductions on coupons of bonds issued on the mainland open up another avenue for Hong Kong firms, while reducing the cost of funding due to lower interest rates

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With the Inland Revenue Department ’s inclusion of the Shanghai and Shenzhen stock exchanges to its list of recognised bourses, Hong Kong companies that list their bonds on these two markets can apply for tax deduction on their interest payments in the city. Photo: VCG via Getty Images

Published: 1:14pm, 13 May 2024Updated: 6:22pm, 13 May 2024

Hong Kong and mainland China’s slew of tax incentives to promote cross-border listings and trading will benefit both their capital markets, enhance cross-border trading schemes and further the internationalisation of the yuan, according to tax experts.

Hong Kong companies can apply tax deductions on interest payments for bonds issued and listed on the Shanghai and Shenzhen stock exchanges from April 18, according to the Inland Revenue Department (IRD), the Hong Kong government department responsible for collecting taxes and duties.

Mainland authorities too are reviewing the waiver of the 20 per cent dividend tax paid by mainland Chinese investors on trading stocks of Hong Kong-listed mainland companies, according to a Bloomberg report citing unnamed sources. Hong Kong Exchanges and Clearing, the bourse operator, and the Securities and Futures Commission, the market regulator, declined to comment.

“Overall, these tax incentives are a win-win for both the Hong Kong and mainland capital markets’ development,” said Danny Kwan, a member of the Greater China taxation committee at accounting body CPA Australia.

Hong Kong companies can apply tax deductions on interest payments for bonds issued and listed on the Shanghai and Shenzhen stock exchanges, according to the Inland Revenue Department. Photo: Fung Chang

Such incentives will boost cross-border trading, while mainland investors will benefit from the launch of new equity products and boost the yuan’s growing global reach, he added.