China’s First Taxation Policies On Asset-Backed Securities Released

In March 2005, China kicked off the experiment on securitization of credit assets, which allowed banks to sell their credit assets through issuing the securities in the capital market for refinancing. It was regarded as an important step in China’s financial reforms with the aim of optimizing banks’ structure of asset and liabilities and promoting financial innovation. The related products are referred as asset-backed securities (ABS).

However, the tax policies related to the assets’ securitization have remained unclear until March 2006, when the PRC State Administration on Taxation (SAT) issued a circular (Caishui (2006), No5), which laid down the taxation framework for asset securitization in the banking sector. The relevant taxation policies are as follows.