(Yicai) Sept. 2 -- China will levy a 20 percent individual income tax on the interest, dividends, and bonuses that overseas individuals earn from foreign-invested companies in the country.

When foreign firms in China pay interest, dividends, and bonuses to foreign individuals, they should withhold 20 percent for taxes on their behalf and declare and pay the taxes by the 15th of the following month, according to a new policy issued by the Ministry of Finance and the State Taxation Administration yesterday.

If a foreign-invested company in China fails to withhold the taxes, the individual receiving the interest, dividends, or bonuses shall pay them before June 30 of the following year, the policy noted.

In 1994, China introduced a preferential policy exempting overseas individuals from the individual income tax on interest, dividends, and bonuses obtained from foreign-invested companies in the country. This was to encourage foreign investment in China, Ge Yuyu, associate professor at the Shanghai National Accounting Institute, told Yicai.

With China’s economic and social development, the new tax policy places greater emphasis on fairness and uniformity, so its implementation will help plug loopholes that allow some individuals to avoid paying taxes by switching to a foreign nationality, Ge explained.

Some foreign individuals still paid taxes on interest, dividends, and bonuses earned in China in their home countries, according to Ge. Now, they can offset the amount when they return home, so the impact will not be significant, he added.

Editor: Futura Costaglione