New | China unveils tax template for some foreign cross-border investments, sources say

Chinese regulators have revealed key details of how China plans to tax past profits of foreign institutional investors via cross-border investment programmes.

The new policy would apply to profits earned by the Qualified Foreign Institutional Investor (QFII) programme and the renminbi-denominated version of the same programme (RQFII) between Nov. 17, 2009 and Nov. 16, 2014, said sources who attended a compliance training session for programme participants in Beijing on Thursday.

Foreign investors have long been frustrated by Beijing’s reluctance to specify how past trading profits would be taxed, while reserving the right to tax them later, making it hard to accurately value portfolios.

Together, the two programmes have been issued quotas to buy an estimated US$116 billion (HK$900 billion) worth of Chinese stocks, bonds and money instruments by regulators, nearly 10 times the amount of quota currently used by foreign investors through the Shanghai-Hong Kong stock connect pilot launched in November.

Hundreds of millions of dollars have been withheld by QFII and RQFII asset managers awaiting a decision on what taxes will be applied, experts have estimated.

The training session was intended to show foreign fund managers how to comply with the new regime, the sources said, although regulators present told them the training materials should not be interpreted as actual policy.