China to end dividend tax exemptions for expatriates

China's Ministry of Finance and State Taxation Administration have announced the termination of a tax exemption for dividends and bonuses earned by expatriates from foreign-invested enterprises. Effective September 1, 2026, such income will be subject to a 20% individual income tax rate.

The policy ends a tax incentive that has been in place since 1994, originally designed to attract foreign investment during China's reform and opening-up period. Under the new regulations, foreign-invested enterprises will be responsible for withholding the tax at the time of payment. If the enterprise fails to withhold, the individual must settle the tax by June 30 of the following year.

Experts suggest the move aims to promote tax fairness and unify the national tax system, eliminating differential treatment between foreign and domestic investors. Analysts note that as China moves toward high-quality development, the investment environment is increasingly driven by market size, rule of law, and industrial support rather than specific tax breaks. The change is also expected to prevent tax arbitrage through nationality changes and ensure tax neutrality.