The Ministry of Finance of China File Photo: VCG

China's Ministry of Finance and the State Taxation Administration jointly issued an announcement on Tuesday, 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 percent.

The tax exemption was introduced in 1994 to attract foreign investment during China's reform and opening‑up drive, China Media Group reported.

The policy represents a fairness‑oriented reform. 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, an executive council member of the China Society for World Trade Organization Studies, told the Global Times on Tuesday. 

For foreign individuals whose home countries adopt worldwide income taxation, the 20‑percent 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. The growing number of newly established foreign‑funded firms in China validates this trend," Li said.

China recorded 35,000 newly established foreign-invested enterprises in the first half of 2026, up 7 percent year-on-year, the State Administration for Market Regulation said on Saturday.

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 foreign direct investment in high-tech industries surged 33.2 percent 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.

In June, the MOFCOM and other government departments jointly released an action plan to stabilize and optimize foreign investment utilization, detailing 15 measures.

The plan prioritizes wider market access in the services sector and also calls for efforts to promote the "Invest China" initiative and ensure that foreign-funded enterprises' concerns over equal participation in government procurement and fair access to business operations are fully addressed.