Stamp duty impact on dual-listed companies in Hong Kong and Mainland China

Did you know? Trading shares of the same company listed in Hong Kong and Mainland China can result in significantly different transaction costs. For investors investing in "A+H" dual-listed companies, a thorough understanding of the differences in stamp duty between the two jurisdictions is crucial for accurate cost calculation and investment strategy formulation. Both Hong Kong and Mainland China lowered their stamp duty rates in 2023 to boost market competitiveness, yet their tax structures, rates, and collection mechanisms differ considerably. This guide provides a comprehensive breakdown of the key stamp duty aspects for dual-listed companies, compares the tax regimes of Hong Kong and Mainland China, analyzes the tax treatment of A-shares and H-shares, and explains the tax implications of Stock Connect transactions.

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Comparison of Current Stamp Duty Rates: Hong Kong vs. Mainland China

Hong Kong Securities Stamp Duty

According to the 2023 Policy Address, Hong Kong lowered the stamp duty rate on securities transactions from 0.13% to 0.1% for each of the buyer and the seller, effective from 17 November 2023. The relevant Stamp Duty (Amendment) (Securities Transfer) Bill 2023 was passed by the Legislative Council on 15 November 2023, representing an important initiative to consolidate Hong Kong's status as an international financial center.

Key Features of Hong Kong Stamp Duty:

• Tax Rate: 0.1% for each of the buyer and the seller (totaling 0.2% per transaction)

Basis of Calculation: Calculated based on the amount of consideration or market value of the shares (whichever is higher)

Definition of "Hong Kong Stock": Securities whose transfer is required to be registered in Hong Kong

Payment Liability: Both the buyer and the seller are liable to pay

Fixed Stamp Duty: Plus a fixed stamp duty of HKD 5 per instrument

Mainland China Securities Transaction Stamp Duty

On August 28, 2023, the Ministry of Finance and the State Taxation Administration of China halved the securities transaction stamp duty rate from 0.1% to 0.05%, marking the first reduction since 2008. This move was intended to invigorate the capital market and boost investor confidence amid a complex economic environment.

Key Features of Mainland Stamp Duty:

• Tax Rate: Levied at 0.05% of the transaction amount
• Paying Party: Payable by the seller only (changed to unilateral levying since September 2008)
• Scope of Application: Applicable to A-shares traded on the Shanghai Stock Exchange and Shenzhen Stock Exchange
• Historical Background: First reduction in 15 years; the rate was maintained at 0.1% between 2008 and 2023

Comparative Analysis: Hong Kong vs. Mainland China

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Understanding the Definition of "Hong Kong Stock"

Whether Hong Kong stamp duty applies hinges on whether the securities fall under the definition of "Hong Kong stock" in Section 2 of the Stamp Duty Ordinance (Cap. 117). This definition is crucial for determining tax liability.

The definition of "Hong Kong stock" includes:

• Securities whose transfer must be registered in Hong Kong
• Shares of corporations incorporated in Hong Kong
• Shares of foreign companies that maintain a register of members in Hong Kong
• H-shares of Mainland companies listed on the Stock Exchange of Hong Kong

Examples of securities not considered "Hong Kong stock":

• A-shares traded on the Shanghai or Shenzhen Stock Exchanges
• Shares registered outside Hong Kong, even if traded through Hong Kong intermediaries

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Dual-Listed Companies: A+H Share Structure

Companies dually listed in Mainland China and Hong Kong (commonly known as "A+H" companies) issue two distinct classes of shares, which carry different characteristics and tax treatments.

A-Shares (Mainland Listed)

• Listed on the Shanghai or Shenzhen Stock Exchange
• Denominated in Renminbi (RMB)
• Subject to Mainland stamp duty: 0.05% payable by the seller only
• Historically restricted mainly to Mainland investors (now tradable via Stock Connect)

H-Shares (Hong Kong Listed)

• Listed on the Stock Exchange of Hong Kong

Denominated in Hong Kong Dollars (HKD)

Subject to Hong Kong Stamp Duty: Buyer 0.1% + Seller 0.1% = Total 0.2%

Freely tradable by international and Hong Kong investors

Stamp Duty Treatment: Applied Independently

For dual-listed companies, stamp duty is applied independently based on the location of the exchange where the transaction occurs. This creates a significant cost difference that investors must consider.

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Stock Connect: Cross-Boundary Transaction Stamp Duty

Shanghai-Hong Kong Stock Connect (launched in 2014) and Shenzhen-Hong Kong Stock Connect (launched in 2016) allow cross-boundary securities trading. The stamp duty treatment differs significantly between "Northbound Trading" and "Southbound Trading."

Northbound Trading (Hong Kong/Overseas Investors Buying Mainland Stocks)

Hong Kong Stamp Duty: Not Applicable

• Securities on the SSE and SZSE do not fall under "Hong Kong stock" pursuant to the Stamp Duty Ordinance
• Transactions are not subject to Hong Kong stamp duty

Mainland Stamp Duty: Applicable

• Sellers pay 0.05% stamp duty to Mainland authorities
• Buyers are exempt (consistent with Mainland rules)
• Collected via the Stock Connect trading mechanism

Southbound Trading (Mainland investors purchasing Hong Kong stocks)

Hong Kong Stamp Duty: Applicable

• Securities on the SEHK constitute "Hong Kong stock" under the Stamp Duty Ordinance
• Both buyers and sellers pay 0.1% stamp duty each (0.2% in total)
• Collected through the SEHK in accordance with the existing collection agreement entered into between the SEHK and the Collector of Stamp Revenue

Stock Connect Stamp Duty Summary

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Recent Regulatory Developments (2023–2025)

Hong Kong: Enhancing Market Competitiveness

November 2023: Stamp Duty Rate Reduction

• The tax rate was reduced from 0.13% to 0.1% each for both buyers and sellers
• Reverted to pre-August 2021 levels

Aimed at reducing transaction costs and improving market sentiment

December 2024: Exemptions for REITs and Options Market Makers

• The Legislative Council passed the Stamp Duty Legislation (Miscellaneous Amendments) Bill 2024 on December 11, 2024
• Exemption of stamp duty on the transfer of real estate investment trust (REIT) units effective December 21, 2024
• Aligns Hong Kong's tax arrangements with Mainland China, Japan, and Singapore (where REITs are generally exempt)
• Exemption of stamp duty for options market makers' jobbing transactions

Mainland China: Market Stimulus Measures

August 2023: Stamp Duty Halved

• The tax rate was halved from 0.1% to 0.05% on August 28, 2023
• The first reduction in 15 years (since the 2008 Global Financial Crisis)
• Part of a broader stimulus package, including slowing IPO issuances and lowering margin requirements

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Practical Guide for Investors

Cost Comparison Example: USD 1 Million Transaction

Dual-Listing Investment Strategy Considerations

1. Exchange Selection Based on Stamp Duty: The stamp duty cost for A-shares is significantly lower (0.05% vs. 0.2% total cost). However, institutional investors should build a total transaction cost model that encompasses stamp duty, brokerage commissions, exchange fees, and FX conversion costs.
2. Stock Connect Advantages: "Northbound Trading" offers the same stamp duty treatment as direct A-share trading. "Southbound Trading" is subject to Hong Kong stamp duty, offering no advantage over trading directly on the Hong Kong Stock Exchange.
3. Round-Trip Trading: For active trading strategies, mainland A-shares incur 8 times lower stamp duty costs (0.05% round-trip vs. 0.4% in Hong Kong).
4. Long-Term Investors: For a "buy and hold" strategy, the one-off stamp duty cost is relatively negligible. Focus should be placed on fundamental factors: corporate governance, dividend policies, and currency preferences.

Exemptions and Special Circumstances

Hong Kong Stamp Duty Exemptions (Partial List):

• Exchange Traded Funds (ETFs) - Exempt since 2015
• Real Estate Investment Trusts (REITs) - Exempt since December 21, 2024
• Transfers between associated bodies corporate (subject to qualifying conditions)
• ETF market maker transactions in connection with creation/redemption activities
• Dual-counter market maker transactions for arbitrage and liquidity provision
• Securities lending and borrowing transactions (subject to qualifying conditions)
• Options market maker jobbing business (since December 2024)

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Tax Planning and Compliance Considerations

Stamp Duty Collection Mechanism

Hong Kong:

• Automatic collection of stamp duty on exchange-traded transactions via HKEX
• Collection agreement entered into between SEHK and the Collector of Stamp Revenue
• For non-exchange transfers: both parties must execute and stamp contract notes within 2 business days
• Penalties for late stamping: up to 10 times the amount of the stamp duty payable, with potential criminal prosecution

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About the Author

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Written by

Sarah Lam

Tax Content Specialist at tax.hk

Sarah Lam is a senior tax journalist covering Hong Kong and Greater China tax developments. She previously worked at the South China Morning Post and has won multiple awards for her financial reporting.

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