THE People’s Bank of China (PBoC) in a recently released note has set out guidance for international investors entering China’s interbank bond market (CIMB). The note addresses issues such as tax and fund remittance.

According to the PBoC note issued November 8, all overseas institutional investors are able to conduct cash bond transactions in the CIBM. Overseas institutional investors include commercial banks, insurance companies, securities companies, fund management companies and other asset management institutions, as well as investment products legally issued by the above financial institutions. Pension funds, charity funds and endowment funds are also included.

For investment by overseas institutions in treasury bonds and local government bonds in the CIBM, interest income and capital gains obtained during the pilot business tax period are exempt from value-added tax; interest income is exempt from income tax; and capital gains are exempt from income tax. This is until a new tax policy is released.

Except for treasury bonds and local government bonds, in accordance with relevant regulations, 10% corporate income tax and 6% value-added tax shall be paid for bond interest income; capital gains are temporarily exempt from 10% corporate income tax and exempt from value-added tax during the pilot replacement business tax period.

With regards to fund remittance, any principal remitted by overseas institutional investors may be in renminbi or foreign currencies. Funds can be remitted out in renminbi or converted to foreign currencies domestically before being remitted out. Currency mix will otherwise be the same as the funds remitted in.

In addition, there will be no investment quota in the CIBM and the investment amount is at the discretion of qualified foreign institutional investors (QFII).

For hedging purposes, investors can also conduct bond lending, bond forwards, forward rate agreements, interest rate swaps and other transactions. Overseas renminbi clearing banks and participating banks may also conduct bond repo transactions in the CIBM.

There will be transaction fees, which should be paid to China Foreign Exchange Trading System (CFETS), while relevant service fees shall be paid to the China Central Depository & Clearing Co (CCDC) and the Shanghai Clearing House. Relevant service fees charged by the interbank market settlement agents with international settlement business capability shall be negotiated between overseas institutional investors and their settlement agents.

For the detailed rules (in Chinese and English) please click here.