Recently, Lei Tianliang, deputy to the National People's Congress and chairman of the Hong Kong Securities Regulatory Commission, proposed during the two sessions to continue to expand and optimize the existing connectivity mechanism, consolidate Hong Kong's role as a bridge between mainland and overseas capital markets, and further consolidate and enhance Hong Kong's important position as the preferred overseas listing destination for mainland enterprises.
One of the proposals includes the imposition of high dividend dividend income taxes on individual investors under the Hong Kong Stock Connect, which affects the attractiveness of the Hong Kong stock market to individual investors in mainland China.It is recommended that the State Administration of Taxation and the securities regulatory authorities of the two places actively study and optimize the relevant tax system to lower the dividend tax level of individual investors on the Hong Kong Stock Connect to the same level as the A-share market.
This article will discuss in detail the current dividend tax systems for Hong Kong Stock Connect and A shares, and how this proposal will affect the Hong Kong stock market if implemented.
Different tax rates affect the actual return on higher dividends
The purchasing power of Hong Kong Stock Connect funds slowed slightly after 2021, but it is still an important component of the Hong Kong stock market. By the end of 2023, Hong Kong Stock Connect's annual capital turnover exceeded HK$7 trillion, accounting for more than 28% of market turnover. The total market value of Hong Kong Stock Connect companies is HK$45 trillion, and the market value of Hong Kong Stock Connect accounts for 86% of the total market value of Hong Kong Stock Connect.
Figure: Hong Kong Stock Connect capital flow
However, it is difficult for mainland investors to spread their preferences for undervalued and high-dividend stocks to the Hong Kong stock market. There is a clear dividend rate and valuation difference between Hong Kong stocks and the A-share high-dividend sectorTake China Shenhua, which is listed in both places, as an example. The TTM dividend rate for A-shares of China Shenhua is 6...