China Regulatory Brief: Hong Kong-Shenzhen Stock Connect Tax Policies Clarified and Breastfeeding Leave Law Passed in Tianjin

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Tax policies for the Shenzhen-Hong Kong Stock connect program clarified

The Ministry of Finance (MOF), the State Administration of Taxation (SAT), and China Securities Regulatory Commission issued a notice clarifying tax policies for the Hong Kong-Shenzhen stock connect (Cai Shui [2016] No. 127), which will become effective on December 5, 2016. It touched on areas such as applied income tax for investment by Chinese nationals made in Hong Kong listed stocks, and Hong Kong nationals’ investment in stocks listed in Shenzhen. It also clarified the VAT and stamp duty policies concerning the Hong Kong-Shenzhen stock connect program. The notice stipulated that during the period from December 5, 2016 to December 4, 2019, the income of Chinese nationals deriving from price differences of the transacted shares listed in Hong Kong will be exempt from individual income tax (IIT).

VAT application of several services clarified

The SAT has issued an announcement clarifying taxation of various services (Announcement, [2016].No. 69). It specially states that, for taxpayers who provide construction services, if a down payment and security deposit is deducted by the project contract from the payable construction cost, and is not invoiced, the date on which the taxpayer receives the down payment and security deposit will be considered the starting point from when the VAT liability arises. It also clarifies several services applicable for VAT, including overseas construction services, overseas tourism services, international shipment services, rental services of apartment hotels, examination services for overseas units, visa agency services, agency business for imported goods exempted from VAT, and the accommodation industry, in which VAT invoices are issued directly by taxpayers.

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Campaign to promote supply-side structural reform and boost consumption planned

13 departments, including the Ministry of Commerce, the State Development and Reform Commission, the Ministry of Finance, the General Administration of Customs, and SAT jointly issued plans for a campaign to speed up innovation of domestic trade distribution, promote supply-side structural reform, and boost consumption (Shang Zhi Fa[2016] No. 427). It suggested that efforts should be made to expand and open up the service industry. A negative list and a management model of national treatment will be implemented over the trade and commerce logistics invested in by foreign companies. Policy allowing head offices and branches to pay VAT and EIT together will be further consolidated. It also details how port entry duty-free stores that have been approved by the State Council should be established in order to encourage direct sale of imported commodities.

Tianjin passes breastfeeding leave law

The Tianjin Municipal People’s Congress has passed a law guaranteeing the rights and interests of women who have recently taken maternity leave. Effective as of March 1, 2017, if a female employee encounters any difficulty after the end of maternity leave, she may apply to her employer to grant paid breastfeeding leave for up to six months. If an agreement regarding salary is not reached, 80 percent of the employee’s basic wage will be paid. The law emphasizes that taking breastfeeding leave does not affect employees’ promotion, wage adjustment, or their total length of service.


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