China ends dividend tax exemption for expats, applying 20% rate
The exemption previously enjoyed by overseas nationals on gains from foreign-funded firms in China was cancelled in an announcement on Tuesday
China’s tax authorities announced on Tuesday 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.