China consider capital gains tax for PE funds

The State Administration of Taxation is already gathering opinions from tax officials at local government levels, The South China Morning Post reported, citing officials and fund managers briefed on the new policy.

The levy is set to replace the 25% corporate income tax and will mainly target renminbi-denominated funds that cash out of IPOs or transactions in the domestic market. The tax will be paid on listing even if the funds have yet to cash out. This includes cases in which stock prices fall below the offering price, leaving funds with smaller gains.

In addition to the existing corporate income tax requirement, investors and LPs in funds are subject to a 20% dividend tax before bringing their money home.

The potential regulation has raised concerns among fund managers who have enjoyed a decade of strong returns and in recent years have seen increased commitments to private equity from high net worth individuals and domestic institutions such as the National Council for Social Security Fund..

In the US, venture capital and private equity funds are taxed 15% on their capital gains for investments of more than a year, much lower than the proposed levy in the mainland. Early this month, it was reported that the Indian Finance Ministry may cut the long-term capital gains tax rate from 20% to 10% on investments made by private equity funds into shares of unlisted companies. The moves is intended to attract more foreign capital.

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• Topics
• Regulation
• Greater China
• China
• tax
• regulation