Hong Kong Investors To Pay Tax

JULY 4, 2011   THE WALL STREET JOURNAL

By JEFFREY NG

HONG KONG—The Hong Kong government said individual shareholders of H-share stocks, or Hong Kong-listed companies incorporated in China, will be subject to a withholding tax of 10% on the companies' dividend payments.

The tax is imposed by mainland Chinese authorities.

The government's statement, issued Monday, followed a reply it received from China's State Administration of Taxation clarifying arrangementsconcerning individual investors in Hong Kong.

Some H-share companies had been unclear as to what tax rate to apply, and some, such as Air China Ltd., decided to withhold 20% of dividend payments, in line with Chinese rules that dividends received by domestic investors from mainland Chinese companies are subject to 20% tax, pending clarification from authorities.

Individual investors of China-incorporated stocks listed in Hong Kong had previously been exempt from paying withholding tax in China, though the arrangement was canceled this year. Meanwhile, The 10% withholding tax rate for corporate owners of shares is unchanged.

The government also said that the withholding tax rate may be different for individual shareholders of Hong Kong-traded H shares who aren't residents of the city.

"For shareholders who are residents of other countries and whose home countries have reached an agreement with China on an applicable withholding tax rate higher or lower than 10%, they have to follow the bilateral tax agreement in paying tax in connection with dividends paid by mainland companies listed in Hong Kong," the government said.

Write to Jeffrey Ng at jeffrey.ng@dowjones.com