How does mainland capital gains tax concern you?
Fund investing in Hong Kong generally doesn’t involve the levy of capital gains tax (CGT). But it may be different if you hold a fund with exposure to mainland securities.
When it comes to investments in mainland securities by foreign investors (including non-mainland domiciled investment funds, QFIIs and RQFIIs), there are risks and uncertainties concerning the mainland CGT application.
While currently CGT tax is not enforced and some funds do not make any related provisions, as an investor, you should note:
- A fund manager should exercise professional and commercial judgement and act in investors’ best interest, after taking professional tax advice, to decide whether to make provision for the fund’s potential CGT liability or to change any provisioning policy from time to time.
- Each fund’s tax provisioning policy may differ depending on various factors. Even if a fund sets CGT provision, the provision may be excessive or inadequate.
- Mainland tax rules and policies are uncertain. It is possible that CGT would be enforced, and such enforcement may be on a retrospective basis.
- If mainland authorities collect CGT, any shortfall between the provision (if any) and actual tax liabilities will have to be paid out of your fund’s assets. This could affect the fund’s net asset value (NAV) negatively and cause significant losses to you.
- You will not be impacted if you have sold your interests prior to CGT enforcement and/or change in tax provisioning. Likewise, you will not benefit from any release of tax provisions back into the fund.
Offering documents are a comprehensive guide to a fund’s risks. You should carefully read the CGT provisioning policy of a fund (which may have substantial exposure to mainland securities whether through RQFII, QFII or other mainland market access derivative products) and the associated risks as disclosed in the offering documents before investing in the fund. If in doubt, you should consult your professional advisors.
If you hold a renminbi product, please be reminded that you may not receive renminbi upon redemption or sale of the investment. Like other foreign currencies, the exchange rate of renminbi may rise or fall; there is also no guarantee that renminbi will not depreciate.