• Foreign Ownership Another key issue to address is the foreign ownership limits. Brokers and clients will need to monitor the foreign investor holding limit per the mainland regulations. Following changes to the official limits (June 2014) are set at 30% for the total holdings by all foreign investors in a single stock. And the single investor limit per stock is set at 10%. Investors need to track limits across all holdings i.e. (QFII Qualified Foreign Institutional Investor+ RQFII Remimbi Qualified Foreign Institutional Investor + SH – HK Stock Connect holdings) , i.e. all accounts held with custodians and brokers if more than one is to be used. Considerations – have business requirements been written, systems been enhanced and internal UATs completed, client reporting defined and designed, risk sign offs obtained and operational procedures updated? • Tax – another critical area that needs clarification is Capital Gains Tax (CGT). It is stated in Chinese law that there is a 10% CGT but Chinese tax authorities have not been strictly enforcing the collection of the CGT. The use of multiple brokers may complicate the tracking of tax obligation and it is possible to be imposed by back taxes after all positions have been sold and cash-settled. The market is still awaiting clarification from the State Administration of Taxation to enable brokers and th
eir clients to understand the procedures and implications of participating in the pilot scheme. Hong Kong brokers will need to ensure that they fully explain to clients the known situation and anticipated risks before the scheme goes live. Considerations – have business requirements been written? Have tax consultants been engaged? Have all systems been enhanced and internal UATs been completed? Has client reporting been defined and designed? Have you obtained sign off from internal Tax department? Have operational procedures been updated? The overall reaction from many market participants to the prospect of more free and open access between the two exchanges has been extremely positive, ironically as it was in 2007 when it was first proposed. Up to 100 brokers have expressed their interest in being the first batch of participants in this pilot scheme. The pilot scheme between Shanghai and Hong Kong is another groundbreaking step to open new opportunities for Mainland and international investors and create a viable mechanism for investing in Mainland stock markets with offshore RMB. The Through train is coming, are you ready to be on board?
Shanghai – Hong Kong Stock Connect The Train Is Coming!
