Hong Kong, mainland China tax waivers a ‘win-win’ for capital markets’ development, experts say Hong Kong and mainland China’s slew of tax incentives to promote cross-border listings and trading will benefit both their capital markets, enhance cross-border trading schemes and further the internationalisation of the yuan, according to tax experts. Hong Kong companies can apply tax deductions on interest payments for bonds issued and listed on the Shanghai and Shenzhen stock exchanges from April 18, according to the Inland Revenue Department (IRD), the Hong Kong government department responsible for collecting taxes and duties. Mainland authorities too are reviewing the waiver of the 20 per cent dividend tax paid by mainland Chinese investors on trading stocks of Hong Kong-listed mainland companies, according to a Bloomberg report citing unnamed sources. Hong Kong Exchanges and Clearing, the bourse operator, and the Securities and Futures Commission, the market regulator, declined to comment. “Overall, these tax incentives are a win-win for both the Hong Kong and mainland capital markets’ development,” said Danny Kwan, a member of the Greater China taxation committee at accounting body CPA Australia. Such incentives will boost cross-border trading, while mainland investors will benefit from the launch of new equity products and boost the yuan’s growing global reach, he added. In another related development, financial regulators in mainland China and Hong Kong rolled out enhancements to the Swap Connect scheme on Monday. The scheme, launched in Hong Kong a year ago, has been instrumental in allowing global investors to access mainland China’s interbank financial derivatives market to hedge interest-rate risks. The latest enhancements, announced by the People’s Bank of China, the Securities and Futures Commission and the Hong Kong Monetary Authority, include accepting interest rate swap contracts based on the International Monetary Market dates, introducing ancillary services like compression and clearing of backdated swap contracts, and launching other system enhancements and incentive programmes. These improvements aim to align with international standards, meet diverse risk management needs, and reduce investors’ participation costs, the regulators said. Hong Kong domiciled companies raised US$17.95 billion from 98 bond issuances globally this year as of Monday, 19 per cent lower from a year earlier, according to LSEG data. Last year, fundraising stood at US$59.95 billion, 10 per cent more than 2022. It was, however, much lower than the US$95.24 billion raised in 2021 and US$93.24 billion in 2020, when Hong Kong and US interest rates had fallen to almost zero amid the Covid pandemic. Kwan said the IRD already allows tax deductions for Hong Kong companies’ interest payments on bonds issued in international markets such as the US and the UK. After the IRD’s inclusion of the Shanghai and Shenzhen stock exchanges on its list of recognised bourses, Hong Kong companies that list their bonds on these two markets can apply for a tax deduction on their interest payments in Hong Kong. “This will encourage more Hong Kong companies to issue bonds on the mainland’s bourses,” Kwan said, adding it will lower the funding costs for companies as the interest rate on the mainland is lower than in Hong Kong and the US. China’s loan prime rate currently stands at 3.45 per cent, while in Hong Kong it is 5.875 per cent and in the US 8.5 per cent. This opens up another fundraising avenue for Hong Kong companies via bonds on the mainland, according to Wilson Chan Fung-cheung, the associate director of City University of Hong Kong’s master of business administration programme, pointing to the Chinese bond market’s deep liquidity and lower interest rates. These comprise facilitating listings in Hong Kong by the mainland’s industry-leading companies, expanding the Stock Connect cross-border investment scheme by allowing more exchange-traded funds, adding Reits (real estate investment trusts) and trading yuan-denominated shares in Hong Kong. The measures have helped the benchmark Hang Seng Index gain more than 16 per cent since then. At one point, it rose 20 per cent from a January low, a gain defined as a bull market. https://www.scmp.com/business/markets/article/3262428/hong-kong-mainland-china-tax-waivers-win-win-capital-markets-development-experts-say (ICE HONG KONG)

Fonte notizia: South China Morning Post