Sister Liu from Shanghai wants to invest in Hong Kong stocks in 2026 and is torn between using the Stock Connect program and opening a Hong Kong brokerage account. She’s heard that “Stock Connect is exempt from individual income tax,” but she’s not sure how long the exemption lasts or which type of tax it covers.

After looking into it, she discovered that Announcement No. 23 of 2023 from the Ministry of Finance extends the individual tax incentives for the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect programs through December 31, 2027—including a temporary exemption on capital gains and specific rules regarding dividends.

This article clearly explains the scope of tax exemptions under the Hong Kong Stock Connect program and how it differs from Hong Kong brokerage accounts. Retail investors interested in investing in Hong Kong stocks are advised to read it.

01

Which two types of taxes are exempt?

According to Announcement No. 23 of 2023 issued by the Ministry of Finance, the State Taxation Administration, and the China Securities Regulatory Commission, mainland individual investors who invest in stocks listed on the Hong Kong Stock Exchange through the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect are temporarily exempt from individual income tax on capital gains from the sale of such stocks. This policy is valid through December 31, 2027.

Dividends are calculated separately: When investing in H-shares through the Hong Kong-China Stock Connect program, the H-share company withholds individual income tax at a rate of 20%; for non-H-shares, China Securities Depository and Clearing Corporation withholds tax at a rate of 20%. Note: Capital gains are tax-exempt, but dividends are subject to a 20% withholding tax (unless exempt).

In a nutshell: The Stock Connect program exempts investors from the “capital gains tax,” not the “dividend tax.” If you want to benefit from tax-free dividends, you’ll need to follow a different set of rules.

02

Compared to Hong Kong accounts

Trading Hong Kong stocks through a Hong Kong brokerage account: Capital gains are not taxed in Hong Kong (there is no capital gains tax in Hong Kong), but dividends are subject to Hong Kong regulations, and non-residents may be subject to withholding tax; furthermore, mainland residents must file their own tax returns for overseas income.

Using the Stock Connect program: Capital gains are exempt from individual income tax through 2027, and dividends are subject to a 20.1% withholding tax by the platform (20%). The rules are clear and currency exchange is convenient, making it suitable for retail investors who primarily invest in Hong Kong stocks. However, the Stock Connect program does not cover U.S. stocks, so you’ll need to use a U.S. stock account to buy NVIDIA shares.

The Reality in 2026: As several overseas brokerages tighten their requirements for opening accounts in mainland China, the tax advantages of the Hong Kong Stock Connect program have become even more apparent. For ordinary investors looking to trade Hong Kong stocks, the Hong Kong Stock Connect is the most hassle-free option.

If you’re facing a similar situation—wanting to invest in Hong Kong stocks but unsure about the tax implications of the Stock Connect program and Hong Kong brokerage accounts, or concerned about potential changes after 2027—feel free to scan the QR code to add Qicaiying’s online customer service (WeChat/Phone: 18620388671). We’ll help you confirm your investment channel and tax status. Feel free to scan the QR code to contact Qicaiying’s online customer service (WeChat/Phone: 18620388671), and we’ll help you sort out this entire process from start to finish.

Scan the QR code to add Qicaiying’s online customer service

03

Corporate investors are counted separately

Mainland enterprises investing through the Stock Connect program: Capital gains from the sale of shares are included in total income for corporate income tax purposes; however, dividends from H-shares held for a continuous period of at least 12 months are exempt from corporate income tax in accordance with the law. H-share companies do not withhold tax; enterprises must file their own tax returns.

So the tax logic for businesses and individuals is completely different: Individuals should focus on the “capital gains tax exemption through 2027,” while businesses should focus on the “dividend tax exemption for holdings held for at least 12 months.” Don’t confuse the two.

The same applies to mutual funds: Capital gains realized by mainland securities investment funds through the Stock Connect program are also temporarily exempt from individual income tax, in line with the treatment of ordinary individual investors.

04

Uncertainties Beyond 2027

The policy is in effect through December 31, 2027. Whether it will be extended beyond that date will depend on announcements made at that time—while this policy has been extended multiple times in the past, do not mistake a “temporary exemption” for a “permanent exemption”; be sure to build in a buffer when making long-term plans.

Another reality: Withholding tax on dividends from Hong Kong Stock Connect is the norm. To reduce the dividend tax rate, one would have to follow the logic behind the U.S. Form W-8BEN (under the U.S.-China tax treaty), but that only applies to U.S. stocks, not Hong Kong stocks.

Retail investors in 90% only need to use the Hong Kong Stock Connect program and Form W-8BEN to handle Hong Kong and U.S. stocks, respectively; an ITIN is not required. An ITIN is only required if you have separate U.S. tax filing obligations.

Scan the QR code to add Qicaiying’s online customer service

05

How to Use the Right Channel

First, invest primarily in Hong Kong stocks: Use the Stock Connect program, which offers capital gains tax exemptions until 2027 and eliminates the hassle of currency exchange. Second, corporate accounts: Hold H-shares for at least 12 months to be exempt from corporate income tax on dividends; plan your holdings accordingly.

Third, investing in U.S. stocks: Open a separate U.S. stock account and fill out Form W-8BEN to enjoy the 10% benefit. Fourth, keep an eye on the time limit: The policy is valid through the end of 2027; allow for a buffer when making long-term investments.

In a nutshell: If you’re investing in Hong Kong stocks in 2026, the “Hong Kong Stock Connect tax exemption through 2027” is a real benefit—it exempts you from the capital gains tax on trading profits. Once you understand what is and isn’t exempt, you’ll be able to choose the right investment channel.

Scan the QR code to add Qicaiying’s online customer service

—— E N D ——