Hong Kong investors will have to pay a 10 per cent dividend tax on shares in the 300-plus mainland companies listed in the city under a new taxation regime brought in by Beijing. Although the mainland has always taxed domestic investors 20 per cent of their dividends, it has until recently granted an exemption to Hong Kong shareholders. Hong Kong does not impose a dividend tax. 'It is going to be a pain as Hong Kong investors were not required to pay any dividend tax before,' said Kenny Lee, chief executive of brokerage firm First China Securities. 'Now they will need to count the tax as part of their investment costs when they invest in a mainland firm,' he added. Since 2008, Hong Kong investors have been required to pay the 10 per cent dividend tax if they allowed their banks or brokers to hold the mainland stocks - known as H-shares - on their behalf. However, individual investors who held the shares in their own names did not need to pay any tax. Local brokers lobbied for that exemption to continue but their attempts failed. In January, the State Administration of Taxation in Beijing put an end to the exemption, but did not specify how much the investors would have to pay. Confusion arose as different H-share companies announced different rates under the new system - Air China said it would withhold up to 20 per cent. The Hong Kong Financial Services and the Treasury Bureau yesterday said the State Administration of Taxation had confirmed Hong Kong residents would only pay a 10 per cent dividend tax after taking into account the double taxation agreement between the city and the mainland. Overseas investors may need to pay the full 20 per cent tax rate or the rate according to any tax treaty signed between their home countries and the mainland. Louis Tse, director of VC Brokerage, believed the new tax would not have a big impact on the price of the H-shares. 'Investors who purchase mainland stocks are believers in the China growth story instead of dividend payments. As long as the share price rises, they can earn money and do not mind paying a small amount of dividend tax.'' he said.
