China: Tax incentives rolled out to boost capital investments

To invigorate the capital market and enhance the confidence of investors, the State Taxation Administration (“STA”) has announced the extension of a series of tax incentive policies.

Booster to stock market

• Stamp Duty (“SD”) on securities transactions is reduced by half from August 28, 2023 (Originally 0.1%, halved to 0.05%).
• Until December 31, 2027, individual income tax (“IIT”) exemption continues to be applied to the investment made by Chinese individual on the HK-listed stocks via two special channels the Shanghai-Hong Kong Stock Connect or the Shenzhen-Hong Kong Stock Connect and investment gains from the trading of Hong Kong fund units under the Mutual Recognition of Funds program.

Booster to derivatives market

• Until December 31, 2027, IIT is temporarily exempted to the income earned by overseas individual investors from their investments in commodity options such as crude oil in China approved by the State Council for opening up to foreign investors.
• Until December 31, 2027, VAT is temporarily exempted to the bonded delivery of futures varieties approved by the State Council for opening up to the foreign investors.

To further support entrepreneurship and innovation, the STA has unveiled further tax incentives to support Venture Capital Enterprises.

• Venture capital enterprises and angel investors who have invested directly in start-up science and technology enterprises by way of equity investment for two years can offset their taxable income by 70% of the investment amount in the year in which the equity is held for two years; if there is insufficient offset in that year, it can be carried forward for offset in the following tax years. This incentive shall remain in force until December 31, 2027.
• The tax policies for investing in the Chinese Depository Receipts (“CDRs”) of innovation-oriented enterprises at the pilot stage are summarized below.

• A venture capital enterprise may opt for either single investment fund accounting or its annual income overall accounting, to compute the IIT payable amount of its individual partners for income sourced from the venture capital enterprise. The single investment fund accounting shall be subject to IIT computed at a tax rate of 20%. The annual income accounting shall be subject to IIT computed under the item of “operating income” at progressive tax rates from 5% to 35%.

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