No More Tax Exemption on Interest and Dividend to Expats in China

The exemption previously enjoyed by overseas nationals on gains from foreign-funded firms in China was cancelled in an announcement on Tuesday

· China has ended the individual income-tax exemption on dividends and bonuses earned by expatriates from foreign-invested enterprises.

· A 20% tax rate on “interest, dividend and bonus income” takes effect immediately, according to the Ministry of Finance and State Taxation Administration.

· The exemption had existed since 1994 to support reform, opening-up and foreign investment.

· Authorities say the change unifies the tax system and removes unequal treatment: foreign investors had tax-free dividends while Chinese investors paid tax.

· It also closes an arbitrage route in which domestic firms could restructure as foreign-invested enterprises to distribute tax-exempt dividends.

· Foreign-funded firms must withhold and remit the tax when dividends or bonuses are paid, then file returns within 15 days after the following month.

· If the company does not withhold the tax, the foreign recipient must pay it by 30 June of the next year, or sooner if authorities set a deadline.

· It remains unclear whether the rule applies to individuals from Hong Kong, Macau and Taiwan, or to foreigners living overseas.

· China says foreign recipients may be able to claim tax credits in their country of tax residence, potentially limiting any increase in their overall tax burden.

· The move forms part of broader efforts to tighten oversight of cross-border financial flows, curb tax avoidance and reduce capital flight.

[ABS News Service/01.09.2026]

China’s tax authorities announced on Tuesday (01.09.2026) that the country would end the tax exemption for dividends earned by expatriates at foreign-funded firms, setting a 20 per cent rate effective immediately.

The measures mainly target “interest, dividend and bonus income” for individual income tax purposes, according to a joint statement from the Ministry of Finance and State Taxation Administration.

State news agency Xinhua said the change was needed for the “unification of the tax system”.

In 1994, China put in place a tax exemption on dividend and bonus income that foreign individuals earned from foreign‑invested enterprises. At the time, the measure was designed to advance reform and opening‑up and draw foreign investment.

A tax‑service hotline representative said that because the guideline was newly issued, immediate confirmation was not available on whether the new rule would cover individuals in Hong Kong, Macau and Taiwan, or foreigners living overseas.

“This change upholds fairness in the tax system. Previously, foreign investors received tax‑exempt dividends while Chinese investors paid tax. Such differential treatment runs counter to the principle of tax neutrality,” said Fu Yifu, a special research fellow at Su Merchants Bank in Nanjing, in China’s eastern Jiangsu province.

“Foreign investors in China value comprehensive strengths such as its rule‑of‑law environment, market size and industrial support, not merely a handful of tax incentives. Phasing out these remaining differential treatment policies will foster a more efficient, well‑regulated unified market system,” Fu said.

The latest measure comes amid a raft of initiatives that Beijing has rolled out in recent months to tighten oversight of cross-border financial flows, aimed at curbing tax avoidance and capital flight.

China announced new rules in July, bringing income generated through offshore trusts under its personal income tax regime, closing a loophole that had enabled wealthy Chinese households to shield large sums of income from taxation.

With a unified national market taking shape, China is progressively regulating preferential tax policies.

“In past practice, some domestic firms rebranded as foreign‑invested enterprises to siphon profits via large dividends and access tax-exempt benefits, causing tax revenue losses. The new rule has fully closed such arbitrage opportunities,” Fu said.

In addition, if their tax residence country allowed tax credits, taxes that foreign individuals pay in China could offset their local tax liabilities. Their overall tax burden therefore might not rise materially, Fu added.

According to the new guideline, foreign‑funded enterprises would need to withhold and remit tax when paying dividends and bonuses to foreigners, and the foreign firms would file tax returns within 15 days of the month after payment, the statement said.

If the enterprise failed to withhold taxes, the foreign individual receiving dividends would be required to pay the tax on or before 30 June of the following year. If tax authorities issued a time-limited payment notice, the foreign individual would be required to comply with that deadline, it added.