China ended a tax exemption dating from 1994 on September 1 for dividends paid by foreign invested enterprises to foreign individuals. The standard individual income tax rate applied to this income is twenty percent.
The change concerns dividends and profit distributions, not ordinary salaries or annual employment bonuses. The company making a payment is expected to withhold and file the tax according to the relevant deadlines.
Some practical questions remain unclear during the first stage of implementation, including the precise effect on certain people connected with Hong Kong, Macao and Taiwan or foreign nationals living outside China.
Foreign shareholders should therefore review their individual position with a qualified tax adviser. Tax residence, double taxation treaties and the method used to hold an ownership interest may all affect the result.
