According to recent market news, regulators are considering reducing the 20% income tax that mainland individual investors need to pay when investing in Hong Kong stock listed companies through the Hong Kong Stock Connect to receive dividend dividends. Stimulated by this, many financial and real estate stocks in the Hong Kong stock market showed a sharp upward trend.$HKEX (00388.HK)$Today, too, it opened higher than 7%. Meanwhile, on May 10, the Hong Kong Stock Exchange's latest response: no comment.
It is worth noting that in March of this year, Hong Kong Securities Regulatory Commission Chairman Lei Tianliang also proposed lowering the dividend tax level for Hong Kong Stock Connect individual investors and lowering the entry standards for Hong Kong Stock Connect mainland investors.
According to reports, the current Hong Kong Stock Connect dividend tax policy: 1) dividends obtained by mainland individuals and securities investment funds through Hong Kong Stock Connect investments are subject to personal income tax at a rate of 20%; 2) dividends obtained by mainland enterprise investors (such as mainland insurance capital or industrial capital) through Hong Kong Stock Connect investments are included in their total income and are subject to corporate income tax according to law, but if mainland enterprises hold shares continuously for 12 months, the dividends obtained are exempt from corporate income tax.
However, individual+public+private equity is about 70% (28% +11% +30%). This group of investors may be affected by the current dividend tax policy. According to estimates, the total dividend tax collected by the Hong Kong Stock Connect mechanism is about HK$45 billion each year. Assuming that mainland individual investors account for about 1/4 of Hong Kong Stock Connect's investment, the direct tax relief brought about by this potential adjustment is about HK$10 billion each year. If public funds are included, the resulting tax relief could be extended to around HK$20 billion.
Hong Kong investors said that this is a major benefit for Hong Kong stocks. Currently, the industry also has high expectations for this, because the tax was actually quite high before. If the benefits are realized, the increase in Hong Kong stocks may expand compared to A-shares, and the AH premium index may return to the level of 120.
CICC believes that if the Hong Kong Stock Connect dividend tax relief is implemented, it is expected to further boost the enthusiasm of mainland investors to invest in Hong Kong stocks, especially in high-dividend-related sectors, boost sentiment in the short term, and help improve the liquidity of the Hong Kong stock market in the long term.
The agency said that the current Hong Kong Stock Connect dividend tax policy mainly affects southbound individuals and fund investors. Constituent stocks with a static dividend ratio greater than 5% were selected based on constituent stocks listed in AH, of which Southbound shares account for about 21%. Among them, individual and fund investors accounted for about 70% of southbound holdings. This group of investors was affected by 20% dividend tax; thereafter, using the AH premium 143 of 2024.5.8 as a benchmark, the AH premium without dividend tax was estimated to be about 138, and the impact on the valuation of H shares corresponding to high dividend was 4%. Further, look for the intersection of high southbound shares and high dividends in the Hong Kong Stock Connect to find: energy, materials, capital goods, automobiles and auto parts, and banks.
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