On September 1, the Chinese Ministry of Finance and the State Administration of Taxation announced the cancellation of the tax-free policy on dividend income for foreign individuals, which had been in effect for 32 years. The new regulation, effective immediately upon its release, states that foreign individuals receiving dividends from foreign-invested enterprises will be subject to a 20% personal income tax rate.
According to the announcements from both departments, foreign-invested enterprises are required to withhold and pay personal income tax when distributing dividends to foreign individuals. The tax must be declared and paid by the 15th of the following month after the income is paid out.
If the tax is not withheld by the foreign-invested enterprises, foreign individuals must pay the tax by June 30 of the following year in which the income was acquired. If the tax authorities set a different deadline, the tax must be paid within the specified timeframe.
The announcements also repeal the tax exemption regulations introduced in 1994, which took effect immediately upon publication without outlining any transitional arrangements.
It is worth noting that the Chinese State Council proposed the cancellation of this tax exemption policy as early as 2013, and it took 13 years for the measure to be officially implemented.
The news has sparked discussions among the public. A financial blogger summarized this adjustment as, “32 years of tax exemption period, 0 days of transition period.”
A user on X platform, “Finding”, raised questions about the state of the national treasury, sarcastically pointing out the shift in government priorities from preventing prominent businessman Li Ka-Shing from leaving the country to now preventing foreigners from fleeing.
According to a report by the South China Morning Post, tax hotline operators were unable to confirm on the day of the new regulation whether it applied to residents of Hong Kong, Macau, Taiwan, or foreign shareholders residing overseas.
The report cited tax consulting agencies stating that eligible foreign shareholders may apply for lower tax rates based on tax treaties signed between China and relevant countries, but their tax resident status and treaty eligibility conditions must be verified.
The Chinese official media explained the cancellation of this tax benefit as a measure to promote the “national unified market,” clean up tax preferences, and plug tax loopholes.
Liang Ji, director of the Center for Public Revenue Research at the Chinese Academy of Fiscal Sciences, mentioned that countries like Europe and the US typically tax residents’ overseas income. Taxes paid by foreign individuals in China can be offset against what they should pay in their home country, so the actual tax burden “will not increase.”
However, according to the South China Morning Post citing analysis by tax consulting agencies, the ability to offset and the amount that can be offset depend on the individual’s tax resident status, the tax laws of their home country or region, and bilateral tax treaties. If the local tax rate is lower or if dividends are not taxed in their home country, the tax paid in China may not be entirely offset, and the actual tax burden may increase.
As the mainland economy slows down, consumer spending and local finances continue to be under pressure. Data from the Chinese National Bureau of Statistics shows that the economy grew by 4.3% year-on-year in the second quarter of this year, down from 5% in the first quarter; total retail sales of consumer goods only increased by 1.2% in the first seven months of this year.
According to data from the Chinese Ministry of Finance, general public budget revenues for the whole country decreased by 1.7% in 2025, with a fiscal deficit of 5.66 trillion yuan for the year. In the first seven months of this year, local government land sales revenue plummeted by 30.8% to 1.17 trillion yuan.
In recent years, the Chinese tax authorities in Beijing, Shanghai, Jiangsu, Zhejiang, and other regions have required mainland residents who traded Hong Kong and US stocks through overseas securities firms to declare and pay taxes on their overseas investment earnings from 2022 to 2024.
In July of this year, the Chinese Ministry of Finance and the State Administration of Taxation also issued new regulations on individual offshore trust taxes, requiring residents to declare and pay taxes on the income generated from placing assets into offshore trusts between 2023 and 2025 within 90 days of the announcement’s implementation.