China will waive capital gains taxes for foreign investors trading through the Shenzhen-Hong Kong exchange link, providing clarity ahead of the Connect's start on Dec 5.

Mainland authorities will also waive the capital gains tax for domestic individual investors buying shares listed in Hong Kong for three years, according to a statement posted on the Ministry of Finance's website. A capital gains tax will still apply to mainland institutional investors trading Hong Kong stocks and the authorities will levy a 20 percent tax on holding Hong Kong stocks.

The decision not to impose a capital gains tax mirrors a similar exemption for foreigners buying shares through the existing Shanghai Stock Connect program, which began two years ago.