China to apply reduced treaty tax rates on dividends and equity investment income below 10%, Finance Ministry announces.

China to apply reduced treaty tax rates on dividends and equity investment income below 10%, Finance Ministry announces.

The Chinese Finance Ministry has announced a new policy that will reduce treaty tax rates on dividends and equity investment income below 10%. This move is aimed at fostering foreign investment and enhancing economic growth. According to the announcement, the new policy will apply to foreign investors who hold less than a 10% stake in Chinese companies.

Under the existing treaty framework, dividends paid by a domestic corporation to a foreign person are subject to a 10% withholding tax. However, the new policy introduces a reduced rate of 5% for dividends paid to foreign investors with a stake below 10%. This reduction is in line with similar provisions in other countries' tax treaties, such as those with the United States [1].

The policy also extends to equity investment income. Foreign investors with a stake below 10% will benefit from a reduced tax rate on their equity investment income. This is a significant step towards making China more attractive to foreign investors, as it reduces the overall tax burden on their investments.

The Finance Ministry has stated that the new policy is effective from July 1, 2025, and will be applied retroactively to dividends and equity investment income paid from January 1, 2025. This means that foreign investors who have already received dividends or equity investment income since the beginning of the year will be eligible for the reduced tax rates.

The new policy is expected to have a positive impact on foreign investment in China. By reducing the tax burden on foreign investors, the government aims to encourage more foreign capital to flow into the country. This, in turn, can stimulate economic growth and create job opportunities.

In conclusion, the Chinese Finance Ministry's announcement of reduced treaty tax rates on dividends and equity investment income below 10% is a significant development for foreign investors. The policy aims to attract more foreign capital and boost economic growth, making China a more competitive destination for foreign investment.

References:
[1] https://taxsummaries.pwc.com/united-states/corporate/withholding-taxes