China's securities regulator Tuesday said it would clarify its tax policy regarding trading of domestic securities by foreign investors in a bid to make the country's capital market more friendly to overseas participants.

The regulator will make tax issues clearer for participants in the Qualified Foreign Institutional Investor program this year, as part of an effort to further open up China's capital market, [Hong Kong Company Registration Guide]Xiao Gang, chairman of the China Securities Regulatory Commission, told a press conference on financial reform during the annual session of the National People's Congress.

Talk about China introducing a capital gains tax of 10 percent on QFII investors persists despite the absence of any such proposals. These uncertainties have forced many QFII investors to set aside funds from their profits for possible future taxation.

Analysts said addressing tax issues will be critical if regulators want to stimulate more investment interest in China.

Xiao also pledged to further increase quotas for the QFII program, a main gateway for foreign investors to access China's yuan-denominated securities markets, and the Renminbi Qualified Foreign Institutional Investor program, which allows overseas investors to invest in the mainland securities market with offshore yuan.

Meanwhile, [Hong Kong Company Formation|Hong Kong Company Registration]Xiao said the CSRC will follow a negative list approach to offer easier access for foreign financial institutions. He didn't provide details.

The negative list was first introduced in the Shanghai pilot free trade zone on a trial basis to replace the previous administrative approval system, allowing foreign investors to invest as freely as their domestic peers in areas beyond the list.