This GMS Flash Alert reports on a circular issued by the People’s Republic of China’s government which stipulates that, from September 8, 2015, dividends derived from the shares held by individuals for more than one year shall temporarily be exempt from individual income tax.
The government of the People’s Republic of China (PRC) has issued guidance in a Circular that suspends individual income tax (IIT) on dividends for long-term individual investors who obtained shares of listed companies via public offerings and market transfers and held them for more than one year.1 The Circular became effective 8 September 2015.
From a global mobility perspective, the new rules will apply to dividends received by international assignees, who are taxable in the PRC, with shareholdings in companies listed on the national equities exchanges.
Circular No.101 aims to further reduce individuals’ tax burdens on long-term investments, and encourage individual investors to be "shareholders" through long-term holdings, instead of "short-sighted speculators" as a means of promoting long-term stability and healthy development of China's capital market.
Circular No.101 will ease some of the tax compliance requirements of listed companies as it suspends the former requirements for such companies to calculate and withhold IIT upon dividend distributions.
The stock market in the PRC has gone through an extremely turbulent period and a series of bail-out measures and supporting policies have been introduced to boost individual investors’ confidence in the stock market. The government has been looking at ways in which tax policy may be used to encourage individuals to invest by holding value-oriented stocks for the long-term, curb short-term speculation, and promote long-term stability and robust development of Chinese capital markets.
“Notice on Issues Relating to Differentiated IIT Policies for Dividends Derived from Listed Companies” (Cai Shui  No.101, “Circular No.101”) was jointly issued by the Ministry of Finance, State Administration of Taxation, and China Securities Regulatory Commission in early September 2015. Circular No.101 stipulates that, from 8 September 2015, dividends derived from the shares held by individuals for more than one year shall temporarily be exempt from IIT.2
In addition, upon dividend distribution, listed companies shall temporarily not withhold IIT.
1 Notice on Issues Relating to Differentiated Individual Income Tax (IIT) Policies for Dividends Derived from Listed Companies, Cai Shui  No.101 (Circular No.101), issued by the Ministry of Finance, the State Administration of Taxation and the China Securities Regulatory Commission on 7 September 2015 and effective 8 September 2015.
2 This tax relief comes on top of the preferential IIT treatment as prescribed in the "Notice on PRC IIT Collection Policy for Dividends Derived from Listed Companies " (Cai Shui  No. 85, "Circular No. 85") and "Notice on Issues Concerning the Implementation of Differentiated IIT Policies for Dividends Distributed by Quoted Companies on the National Equities Exchange and Quotations" (Cai Shui  No. 48, "Circular No. 48").
For additional information or assistance, please contact your local GMS or People Services professional or one of the following professionals with the KPMG International member firm in the People’s Republic of China:
Tel. +86 21 2212 3458
Tel. +86 21 2212 3459
The information contained in this newsletter was submitted by the KPMG International member firm in the People’s Republic of China.
© 2016 KPMG Advisory (China) Limited, a wholly foreign owned enterprise in China and KPMG Huazhen, a Sino-foreign joint venture in China, are member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.