China's two largest portfolio investment schemes for foreigners, known as the Qualified Foreign Institutional Investor (QFII) and the renminbi-denominated version of the same programme (RQFII) will likely be subject to a 10 percent corporate income tax until Nov. 16, 2014, retrospectively.
The China Securities Regulatory Commission (CSRC) said on its official Weibo on Friday that such a move would be in line with China's income tax laws. Its comments confirm a Reuters report in February citing sources that such a plan was being considered.
China decided to exempt QFII and RQFII from corporate income tax when it launched the Shanghai-Hong Kong scheme, which allows investors in the two cities to invest directly in shares listed on each other's bourses for the first time. But the income duties pre-dating the policy will not be exempt, the CSRC said.
China's tax policy concerning QFII and RQFII has been unclear for a long time as Beijing has so far exempted capital gains tax for domestic stock investors.
The government has long said that QFII and RQFII investors have to pay the 10 percent capital gains tax, but has not strictly implemented it due to worries that it would drive away foreign investors amid weakness in its stock market.