China alert - Issue 24, November 2012
Circular No. 85 was issued with the intent of fostering long-term stability in the Chinese stock markets by having a differentiated IIT policy for dividends based on holding period. To achieve this objective, Circular No. 85 has introduced a complicated withholding system on the IIT of the individual investors, which will significantly increase the administrative burden of domestically listed companies and security brokerage companies.
The difference in IIT rates based on the holding period will significantly increase the demand on the withholding system capabilities. Domestically listed companies and security brokerage companies should complete a detailed review of their IT systems before the end of 2012 to ensure the security brokerage companies are equipped to assist domestically listed companies to fully comply with the withholding requirements set out in Circular No. 85. As the effective date of Circular No. 85 is fast approaching, domestically listed companies and security brokerage companies must take immediate action.