In an announcement made public on September 1st, the Ministry of Finance and the State Taxation Administration have clarified that, effective from that same date, dividends and bonuses received by foreign individuals from foreign-invested enterprises will now be subject to individual income tax at a rate of 20%.

This policy change marks a departure from a long-standing preferential tax arrangement that had been in place since 1994. Initially introduced to bolster reform and opening-up efforts and attract foreign investment, the exemption on such dividend income had been temporarily granted to foreign individuals. This preferential treatment is now being phased out. As China continues to build a unified national market, the government is progressively reviewing and standardizing its tax incentive policies.

Industry experts suggest that the elimination of this tax exemption serves multiple purposes. It is expected to uphold a fair and consistent tax framework, support the development of a unified national market, close existing tax loopholes, and enhance the overall regulatory and distributive role of taxation within the economy.