The Chinese stock market is a bit different from the stock market that we see in the UK or the US. Although every stock market is different in terms of country-based genetics. For example, the Indian government holds no regulatory body over cryptocurrencies while Al-Salvador became the first country to recognise Bitcoin as a completely legal tender for transactions.
Similarly, there are not a lot of countries around that we see, which allows spread betting. Some examples are the ones in the regions around Australia, New Zealand to name a few.
The chinese stock market is different from all of these because one, it is the most populous country in the world so naturally, more investors and second, the government is strict when it comes to trading and movement of individual investors.
There are instances where a booming industry had come to a standstill just because the government was not happy about it and the biggest example being Bitcoin.
The government hates or if we put it into better words, thinks of the mining as a hazard to the environment and the plunge the society could take because of an unregulated form of exchangeable currency.
Here, we will talk about how you can save your taxes while actively trading in the chinese stock market. Here, the readers have to understand that tax evasion is a serious crime and we do not endorse any such activity by any means. We are here to tell our readers some ways where they could simply save tax, not evade it.
Everyone can save their taxes by doing something that can be done instead of something else. Imagine investing in a share and holding another. Now in this particular case, there can be a series of things that can be done so that money inflow can be saved.
To understand how tax can be saved, first it is important to understand what the applicable taxes are, around that asset or that particular pool of assets.
This is the individual investors tax. Everyone, including the foreign investors and the local investors, is subject to this tax. The government itself has created some space for the traders to breathe around this tax which will be discussed later in the article.
VAT stands for the value-added tax. There can be a lot of different VAT tax proceedings that the government proceeds on to, towards the traders. There can also be different loopholes that the government itself has provided for the traders to breathe around.
WHT stands for WithHolding Tax. This is mostly applied to a foreign investor when he or she wants to hold an asset for more than a while. Just like the above mentioned, the government has again, left some space for the foreign investors to breathe around this tax.
Now let us see how the chinese government treats these taxes and what are spaces that the traders or businessmen can take upon to save some money.
(A) The foreign investors, individuals and corporations both who are investing in the A-shares listed on the SSE, via the Shenzhen- Hong Kong stock connect are for a while, exempted from the CIT or the IIT. This is on the capital gains derived from the transfer of those A-shares. This is a sheer reduction of the 10 and 20% rates of WHT. This would normally be applied to individuals and foreign corporations.
Take from this
Since the investors are exempted from the IIT and CIT and, if there is a bull market, then money can be made while keeping the whole idea non-amplified. Regular trades can be made specifically on the A shares and specifically from the Shenzhen- Hong Kong stock connect. This is profitable because two out of three different types of taxes are already exempted from the traders, increasing their profit profile a little bit.
(B): In terms of A share dividends paid to the foreign investors, All the circular 127 states, is that the dividends are subject to 10% WHT. This is when they are withheld at the source.
Now the WithHolding Tax is 10% for the foreign investors but the same for individuals is 20%. The applicable domestic law WHT rate for individuals is 20%, so some clarification can be of great help.
The investors cannot enjoy this relief just like that, they have to make an application to the bureau in charge of the tax for a WHT refund. Here, the investor has to pose as a withholding agent. It has to be noted that almost all the chinese treaties provide around 10% tax reduction on the portfolio dividends.
This, in a straightforward manner, means that there is no current treaty that can arise between the corporate investors. At the same time, there are a lot of new chinese tax treaties that can provide the same services but with lower rates. There is an emerging trend that can be seen arising in this particular direction.
WHT refund happens to be the only available mechanism for relieving the WHT since there are no system arrangements at compliance situations for the SSE and HKSE so that they can maintain the treaty relief information for the foreign investors.
Take from This
Foreign investors can simply seek help from the bureau in charge of the tax department if they want to enjoy the 10% tax instead of the 20%. Since the WHT happens to be something that is exclusive in terms of a remedy to a problem, there are not a lot of things that can be done to create a loophole around it to save money. However, when the government itself is offering something to the people, they can easily hinge themselves on that idea.
(C) The corporate investors from the PRC can not benefit anything from circular 127. They will still continue to be subject to the CIT at around 25% on per share trading gains on the transactions that are conducted through the Shenzhen-Hong Kong Stock Connect.
These investors will also be a regular subject to the CI at around 25% of the dividends received from their investments done on the Hong Kong stock investments.
The foreign tax that is held on the dividends can become the roots of a potential rise in the foreign tax credit in china.
Take from this
If the traders invest in the H shares, and if the shares are held for more than a year, then there can be a tax exemption for these shares and at the same time, they can be subject to certain administrative requirements.
More from the chinese government
Just recently, the chinese government had announced that it will cut the share trading stamp from already a marginal 0.3 to an even tighter 0.1 from the 24th of April. This is an effort made to boost the equities market. The equities market has fallen to more than 40% after it saw an all-time high in October, last year. The experts believe that the move was much needed to support the sentiments of the weak investor sentiment. The same sector was a witness to a heavy sell-off this year.
After the proposed bill got a nod from the state council, the MOF and SAT decided to implement it immediately. This was clearly mentioned in a statement issued by the government. The statement also read that the tax will be exempted on both sides of the trade.
An analyst at TX Investment Consulting Ltd. has said that this move displayed the choice of the government to see a better market and would also help the investors to restore their confidence in the market.
Qiu stated that “Confidence in recovery is more important than fund injections,”. “After earlier panic and irrational selling amid a breakdown in confidence, it is hard for the market to return to normal.”
“It was no longer a question of investment, but confidence,” stated Li Feng, another analyst from Galaxy Securities.
Qui had already stated that the move was in time and if there was any more delay for the same, the procrastination would have triggered very heavy losses and could have left the whole idea less effective.
“Three thousand points is an important threshold for both regulator and investors and a sustained decline below the mark could be disastrous to investor confidence and trigger further selling.”
“Further market declines can also have a huge negative impact on the economy,” said Cao Fengqi, head of Peking University’s finance and securities research centre.
The analysts have always said that this fall would also hurt the spending of the customer, cutting them short. Customer spending is an important factor with several others that drive the economy of the Asian SuperGiant. This comes after the fact that the exports to the US are slowing, clearly indicating a recession in the country.
The government is taking a lot of steps to boost the production in the country and it has to be kept in mind that these are schemes that can benefit the people. Not something that can be used to evade the taxes that are already proposed. Traders can use the information for their benefit, not for acts that can be later termed as theft or evasion.
This article does not provide any information on How to evade taxes as such. This article only talks about what has already happened in the market and what the government is doing about it.