China to Cancel Preferential IIT Policy for Foreigners

By Dezan Shira & Associates

Posted: 19th February 2013 08:49

To resolve income discrepancies in China, the State Council recently released opinions on deepening income distribution reform (Guofa [2013] No.6, hereinafter referred to as the “Opinions”). One of the goals laid out in the Opinions is strengthening tax collection on high incomes and improving the tax system, including cancellation of the preferential tax policy that exempted dividend and bonus incomes received by foreign individuals from individual income tax (IIT).
This preferential policy was originally enacted under the “Policy Issues Regarding Individual Income Tax (Caishuizi [1994] No. 020)” released by the Ministry of Finance (MoF) and the State Administration of Taxation (SAT) in 1994. Pursuant to the issuance of the Opinions, the MoF and the SAT are expected to draw up regulations in the upcoming months subjecting foreigners to the regular 20 percent IIT rate on income derived from investment in foreign-invested enterprises (FIEs) in China.
The latest guideline also lays out other means that will be utilized to achieve the goal of diminishing income discrepancies in China, including:
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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