What is the Mutual Recognition of Funds (“MRF”) between the Mainland of China and Hong Kong?
To deepen Mainland-Hong Kong financial cooperation and promote the joint development of the Mainland and Hong Kong capital markets, the China Securities Regulatory Commission (“CSRC”) and the Securities and Futures Commission (“SFC”) have embarked on the Mainland-Hong Kong MRF initiative. On 22 May 2015, the CSRC and SFC signed a memorandum of regulatory cooperation in respect of the MRF. Through the MRF, the CSRC and SFC allow Mainland and Hong Kong funds that meet the eligibility requirements to follow streamlined procedures to obtain authorization or approval for offering to retail investors in each other’s market.
For details, please refer to the relevant web pages of the SFC:
Are the sale and purchase in the Mainland of China of units of a recognized Hong Kong fund under the MRF scheme subject to stamp duty in Hong Kong?
Yes. Under section 2(1) of the Stamp Duty Ordinance (Cap. 117)(“SDO”), units under a unit trust scheme fall within the definition of “stock”. Since a transfer of units of a recognized Hong Kong fund is required to be registered in Hong Kong, the units will be Hong Kong stocks and the instrument effecting the transfer thereof will be chargeable with stamp duty in Hong Kong even though the transfer is effected in the Mainland of China.
Under the MRF scheme, in what circumstances will investors be required to pay stamp duty in Hong Kong in respect of non-trade transfers of units of a recognized Hong Kong fund?
Unless specifically exempted under the SDO, any non-trade transfers of units of a recognized Hong Kong fund will be deemed to be sale and purchase of the relevant securities under section 19(1E)(a) of the SDO. Non-trade transfers of units of a recognized Hong Kong fund generally take place in the following circumstances:
dissolution, liquidation or winding-up of any company or corporation;
donation to a charitable foundation;
assistance in enforcing proceedings or action taken by any court, prosecutor or law enforcement agency; and
any other transfers which may be permitted by the competent authorities.
Investors in units of a recognized Hong Kong fund will be required to execute contract notes and pay stamp duty for the relevant transfers in Hong Kong.
What are the stamping procedures for sale and purchase of units of a recognized Hong Kong fund under the MRF scheme?
For sale and purchase transactions, investors are required to execute contract notes and pay stamp duty for such contract notes within the stipulated time limit. Please contact the relevant fund manager for the stamping procedures. You may also refer to the “Stamping Procedures and Explanatory Notes – Stamping of Shares Transfer” (U3/SOG/PN04A) (the “Explanatory Notes”) issued by the Stamp Office for details. Investors, or their representatives, may present the original contract notes to the Stamp Office for stamping in person. Payment of stamp duty can be made by cash or cheque.
What are the stamping procedures for non-trade transfers of units of a recognized Hong Kong fund under the MRF scheme?
Non-trade transfers are deemed to be sale and purchase transactions and investors are required to prepare contract notes for stamping within the stipulated time limit. Please see Explanatory Notes for the timing on stamping. You may make reference to the Department’s sample to prepare your own contract notes for stamping. For other stamping procedures, please refer to Q&A 6.
If I have changed the nominee or registered holder of my units of the recognized Hong Kong fund under the MRF scheme, such as fund manager or distributor of the fund, through execution of an instrument of transfer, is the instrument of transfer subject to stamp duty in Hong Kong?
For a change of nominee or registered holder without any transfer of beneficial interest in the units of a recognized Hong Kong fund under the MRF scheme, the nominee or registered holder is required to execute an instrument of transfer for effecting the transfer of legal title. Under such circumstance, each relevant instrument of transfer would be subject to a fixed stamp duty of $5.
What documents am I required to produce to ascertain the value of units of a recognized Hong Kong fund for stamp duty purposes?
For the purpose of calculating stamp duty payable, you are required to provide supporting documents indicating the net asset value of the recognized Hong Kong fund which is close to the date of transfers.
If the transfers of units of a recognized Hong Kong fund under the MRF scheme are effected in the Mainland of China, how should the stamping request be lodged?
For investors effecting the transfers (including all sale and purchase transactions and non-trade transfers) outside of Hong Kong, they or their representatives may submit stamping requests on contract notes and/or instruments of transfer either in person or by post to the Stamp Office within the stipulated time limit, together with supporting documents for the net asset value of the recognized Hong Kong fund. Please see Explanatory Notes for the timing on stamping. The Stamp Office will calculate the stamp duty payable and inform the investors or their representatives in person or by post. The investors are required to pay the stamp duty on or before the due date as advised.
How should Hong Kong managers of a recognized Hong Kong fund assist Mainland investors to lodge the stamping request?
Hong Kong managers should make necessary arrangements with their Mainland representatives and/or Mainland distributors to facilitate the stamping of chargeable transfers of units of recognized Hong Kong funds under the MRF scheme effected in the Mainland.
What are the consequences of not paying stamp duty on the transfers of units of a recognized Hong Kong fund under the MRF scheme?
Where an instrument for transfer of units of a recognized Hong Kong fund chargeable with stamp duty is not stamped within the time limit for stamping, such instrument shall not be stamped except by the Collector of Stamp Revenue (“the Collector”) upon payment of the stamp duty and a penalty. Any duty and penalty applicable is recoverable by the Collector as a civil debt from all parties liable.
Any unstamped document which is chargeable with stamp duty cannot be filed or registered by any public officer or body corporate, and cannot be received in evidence in any Court (except in criminal proceedings and civil proceedings by the Collector to recover stamp duty and penalty payable).