China's Ministry of Finance (MOF) and the State Taxation Administration (STA) jointly issued an announcement, scrapping the long-standing individual income tax exemption for dividend income that foreign individuals receive from foreign-invested enterprises, effective immediately. Chinese experts said that the change is intended to deliver equal treatment for all market players and does not represent tightening toward foreign investment. Under the new rule, dividends obtained by foreign individuals from foreign-invested enterprises will be taxed under the category of “interest, dividends and bonus income” at a rate of 20%. The tax exemption was introduced in 1994 to attract foreign investment during China's reform and opening-up drive.
By scrapping the exemption for foreign individuals, the core objective is to treat all market entities equally and foster an environment of fair market competition, Li Yong, Executive Council Member of the China Society for World Trade Organization Studies, told the Global Times. For foreign individuals whose home countries adopt worldwide income taxation, the 20% tax paid in China can be credited against tax liabilities in their home jurisdictions, so their overall tax burden will not rise materially, he added. According to Li, special tax incentives for foreign investors were products of China's early reform and opening-up period. As China's approach to attracting foreign investment has shifted, tax preferences are no longer a major tool for drawing foreign capital. “Foreign investors are now drawn to China by its huge domestic market, complete industrial clusters and robust supply chains,” Li said.
China recorded 35,000 newly established foreign-invested enterprises in the first half of 2026, up 7% year-on-year, the State Administration for Market Regulation (SAMR) said. Separate data from the Ministry of Commerce (MOFCOM) showed that almost 4,800 foreign-funded enterprises made additional investments in China in the first half of this year, while FDI in high-tech industries surged 33.2% year-on-year. This policy adjustment targets only dividend income earned by foreign individual shareholders, rather than representing a tightening of policies toward foreign capital, Li noted. Instead, China has been encouraging foreign investment via institutional opening-up, expanded market access and improved business environment, the Global Times reports.
