For mainland residents investing in Hong Kong and US stocks, understanding relevant tax regulations is crucial. This article will comprehensively analyze what capital gains tax is, why it applies to investments in Hong Kong and US stocks, and explain the workings of CRS (Common Reporting Standard). Furthermore, this article will also provide detailed answers regarding the tax responsibilities and specific tax rates for mainland residents investing in Hong Kong and US stocks through various channels (Hong Kong brokers, Hong Kong-Shanghai Link, and Shenzhen-Hong Kong Link).

Core Concept Breakdown

What is Capital Gains Tax (CGT)?

Capital Gains Tax (CGT), often abbreviated as CGT, is a tax levied on the profits realized from selling assets. These assets can include stocks, bonds, real estate, precious metals, and more. When you sell an asset for a price higher than your purchase price, the resulting gains (known as capital gains) may be subject to Capital Gains Tax.

Please note that not all countries or regions levy Capital Gains Tax. For example, Hong Kong currently does not impose Capital Gains Tax.

Why are Hong Kong and US Stocks Subject to Capital Gains Tax?

• US Stocks: The United States is a country that levies capital gains tax. For non-U.S. taxpayers (such as most mainland investors), while selling US stocks typically qualifies for exemption from capital gains tax, certain conditions must be met (e.g., residency in the U.S. for no more than 183 days within a year). However, dividends received from US stocks are subject to withholding income tax at a rate of usually 30%, but according to the China-U.S. Tax Agreement, mainland Chinese residents can apply to reduce this rate to 10%.
• Hong Kong Stocks: As stated above, Hong Kong does not levy capital gains tax. Therefore, regardless of the channel through which you trade Hong Kong stocks, no tax is payable on the difference between purchase and sale prices. This doesn’t mean that mainland residents don’t need to declare this income to the Chinese mainland tax authorities.

What is CRS Reporting (Common Reporting Standard)?

CRS, or the “Common Reporting Standard,” is a global standard for the automatic exchange of financial account information. Its primary purpose is to combat tax evasion involving offshore accounts and cross-border tax avoidance.

How it Works: In simple terms, financial institutions (such as banks and brokers) that have signed up to CRS need to identify the non-resident taxpayers’ accounts and report their account information (including names, addresses, taxpayer status, account balances, and annual total income) to their local tax authorities. These tax authorities then exchange this information with the relevant tax authorities of the countries/territories where the account holders are residents.

Impact on Mainland Investors: For mainland residents who open accounts with Hong Kong brokers, due to their tax residency being China, Hong Kong financial institutions will exchange their account information through the Hong Kong Customs and Excise Department to the Chinese State Taxation Administration. This means that the inland tax authorities can gain access to information about its residents’ overseas financial assets and income, providing a basis for collecting global income.

Inland Resident Hong Kong & US Stock Trading Tax Breakdown

According to China’s Personal Income Tax Law, Chinese tax residents are required to pay personal income tax on their income sourced globally. This means that even if investment gains occur abroad and may be exempt in the local jurisdiction, there is still an obligation to declare and pay taxes to the Chinese tax authorities.

Recently, the Chinese tax department has intensified its enforcement of taxation regarding individual overseas income.

Trading Hong Kong and US Stocks via Hong Kong Brokers

If you are a mainland resident, trading Hong Kong and US stocks through Hong Kong brokers (such as Futu Securities, Tiger Brokerage, etc.), your tax responsibilities are as follows:

• US Stock Trading:

  • Capital Gains: The profits you receive from the difference between buying and selling US stocks belong to “transfer pricing income.” According to China’s Personal Income Tax Law, it should be declared and paid at a rate of 20% to the Chinese tax authorities. Although the United States typically exempts non-residents from capital gains taxes, Chinese tax residents still need to pay taxes on this global income.
  • Dividends: Dividends received from US stocks will usually have 10% withheld by the broker as estimated income tax (enjoying preferential tax agreements between China and the US). This tax paid abroad can be offset when declaring it in China, but the offset amount cannot exceed the taxable amount calculated according to Chinese tax laws.

• Hong Kong Stock Trading:

  • Capital Gains: Although Hong Kong does not levy capital gains tax, profits from Hong Kong stock trading (price differences) are also considered “transfer pricing income” and must be declared and paid at a rate of 20% to the Chinese tax authorities.
  • Dividends: Dividends received from H shares (companies registered in mainland China and listed on the Hong Kong Stock Exchange) will have 20% personal income tax withheld by the company. Dividends received from non-H shares (companies registered in Hong Kong or overseas and listed on the Hong Kong Stock Exchange) will have 10% dividend tax withheld in Hong Kong. This tax paid abroad can also be offset when declaring it in China.

Trading Hong Kong Stocks via the HKSAR-Mainland China Bond Connect (HK & SH)

To promote capital market connectivity between Mainland China and Hong Kong, the government has introduced targeted tax incentives.

• Capital Gains: According to announcements from the Ministry of Finance, the State Taxation Administration, and the Securities and Futures Commission, personal income tax is currently exempted on any capital gains realized by mainland individual investors through the HKSAR-Mainland China Bond Connect (HK & SH) when buying and selling listed stocks on the Hong Kong Stock Exchange. This incentive policy has been explicitly extended to December 31, 2027.

• Dividend Income:

  • For dividend income received from investing in Hong Kong H Shares via the HKSAR-Mainland China Bond Connect (HK & SH), the H Share company will withhold personal income tax at a rate of 20%.
  • For dividend income received from investing in Hong Kong Non-H Shares via the HKSAR-Mainland China Bond Connect (HK & SH), China Merchants Service Bureau will withhold personal income tax at a rate of 20%. Any pre-paid personal income tax paid in Hong Kong can be claimed for tax refund by submitting a valid withholding certificate to the relevant tax authority of China Merchants Service Bureau.

Tax Highlights Summary

Tax Highlights Summary

Tax Highlights Summary

Tax Highlights Summary

Important Note: The information above is based on current policies. Tax regulations may change, and investors are advised to consult with a professional tax advisor or monitor the latest information released by the tax authorities before making investment decisions and filing tax returns to ensure compliance. The typical time frame for reporting foreign income is from March 1st to June 30th of the following year.