CANCELLED THE EXEMPTION ON DIVIDENDS FOR FOREIGN INDIVIDUALS

On 1 SEPTEMBER 2026 Chinese authorities have issued a Circular repealing the over 30 years old “temporary exemption” from individual income tax granted to foreigners on dividends and bonus income.

With a sudden notice published yesterday 1 September 2026, the Ministry of Finance (MOF) and State Taxation Administration (SAT) cancelled an over-30-year tax exemption granted to foreign individuals who received dividends from a foreign-invested legal entity. Specifically, the 1994 Notice No. 20 provided for a temporary exemption from individual income tax on dividends and bonus income derived by foreign individuals from foreign-invested enterprises, in order to encourage foreign investments in the Country. This provision has been explicitly repealed by the 1 September Notice No. 27, immediately enforceable.

The rationale of the regulatory change, as stated in the new Notice, is to create a level playing field among domestic and foreign invested companies, avoiding tax loopholes and encouraging other elusive behaviors.

This direction will likely be pursued by the Chinese Tax Administration System also in other areas where foreign individuals have specific advantages, such as the tax-exempt fringe benefits in kind in eight categories of expenses (provided by Cai Shui 2018 N.164 and currently extended until 31 December 2027) where the next step might be their not renewal at expiry.