Air China and China Petroleum and Chemical Corporations are among companies withholding 20 per cent of dividend payments to foreigners as they await guidance on how to handle the unwinding of a 17-year-old tax exemption.
China's State Administration of Taxation repealed in December a 1993 exemption from dividends tax for individual foreign holders listed in share registries of companies with Hong Kong-listed H shares and China-listed B shares.
The decision, which doesn't affect institutional investors, was announced on January 4. Air China, the world's largest airline by market value, said it is temporarily withholding 20 per cent of dividends pending a clarification of the policy. "China gave a lot of tax benefits, exemptions, cuts etc. during its early stage of economic development," Charles Li, chief executive officer of Hong Kong Exchanges and Clearing, operator of the city's main bourse, said. "The differences in tax policies between onshore and offshore residents should diminish gradually, because the policies should be fair and equal. Hong Kong investors should start to get used to it."
The Hang Seng China Enterprises Index, a gauge of Chinese companies listed in the city, has retreated 11 per cent since April 8, boosting the measure's dividend yield to three per cent, data compiled by Bloomberg show.
From / Gulf News