China has abolished a tax exemption on dividend income for foreign investors in foreign-funded enterprises, a benefit that had been in place for over 30 years.
On September 1, local time, the Ministry of Finance and the State Taxation Administration announced that a 20% personal income tax will now be imposed on dividend income received by foreigners from foreign-funded enterprises.
Chinese tax law stipulates a 20% tax rate on dividend income. However, to attract foreign capital during the early years of its reform and opening-up, the Chinese government exempted foreign investors from taxes on dividend income from foreign-funded enterprises since 1994.
While this tax incentive was once an effective means of attracting foreign capital, Chinese authorities believe the situation has changed as the economy has significantly grown. There is a prevailing sentiment that foreign investors now prioritize the overall business environment, including legal and regulatory stability and market size, over tax reductions.
* This article has been translated by AI.
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