China's tax authorities have announced the elimination of a preferential policy that exempted foreign individuals from personal income tax on dividends and bonuses received from foreign-invested enterprises. Effective September 1, 2026, such income will be subject to a 20% tax rate under the "interest, dividends, and bonuses" category. This marks the end of a preferential measure that had stood for over three decades.

The policy, first introduced in 1994, was a pragmatic response to the economic conditions of its time. In the early years of reform and opening-up, China's capital markets and foreign investment framework were still developing. Differentiated tax incentives were seen as essential to attract overseas capital, technology, and talent, helping to fill gaps in domestic industrial development. Over the following 30-plus years, this measure effectively facilitated a steady inflow of foreign investment, accelerating China's integration into global industrial and supply chains while bolstering economic growth, industrial upgrading, and an outward-looking economic architecture.

However, times have changed. China now stands firmly as the world's second-largest economy, with a continuously improved business environment, stronger market appeal, more sophisticated industrial capabilities, and a more mature position in global openness. Relying on tax perks alone to lure foreign investment no longer aligns with the demands of high-quality development. More critically, the long-standing disparity in dividend taxation between domestic and foreign individuals has exposed an issue of tax inequity. Domestic investors are required to pay tax on dividend income, while foreign individuals enjoyed exemption on equivalent earnings, resulting in different tax treatments for identical investment activities. Such a disparity runs counter to the principle of tax fairness and hinders the construction of a unified national market.

The cancellation of this exemption is a key step toward correcting the tax system's shortcomings and upholding fairness. Importantly, this policy shift does not signify a tightening of attitudes toward foreign investment. Rather, it demonstrates China's growing confidence and a more mature approach to attracting global capital. In recent years, China has steadily shortened the negative list for foreign investment access and optimized the business climate for foreign enterprises, with a series of concrete opening-up measures delivering tangible benefits that far outweigh any single tax incentive.

Notably, levying 20% personal income tax on dividend income will not increase the overall tax burden on foreign investors. Under standard international tax principles, taxpayers generally have a global tax obligation, meaning investment income earned in the host country must be reported to their home country. In practice, even when foreign individuals enjoyed the tax exemption in China, they were still required to pay the corresponding taxes to their home country. With the exemption now removed, the personal income tax paid in China can be credited against home-country liabilities, leaving actual tax burdens unchanged.

In the long run, a rules-based, fair, transparent, and predictable market environment will serve as a stronger magnet for high-quality foreign capital and top-tier talent. Such conditions are set to inject fresh momentum into the high-quality development of the real economy and China's broader push for high-level opening-up.