Under Circular 34, issued by the Ministry of Finance and the State Taxation Administration of the People’s Republic of China in 2021, foreign investors were exempted from corporate income tax and value‑added tax on bond interest income derived from the Mainland bond market from 7 November 2021 to 31 December 2025.
Background
Recent development
On 15 January 2026, the Ministry of Finance and the State Taxation Administration issued Taxation Announcement No. 5, extending the preferential treatment from 1 January 2026 to 31 December 2027.
KPMG comment
As a result of the extension, Luxembourg investment funds may continue to benefit from a withholding‑tax exemption on interest from bonds issued in the Chinese market until 31 December 2027.
As a reminder, we have the following additional withholding tax (“WHT”) rates:
a. Dividend income is subject to 10% WHT.
b. Interest income from bonds issued by the Chinese government is not subject to WHT (0%).
c. Capital gains on "A-shares" are normally subject to a 10% Capital Gains Tax (“CGT”), but foreign investors benefit from an exemption based on an administrative circular (Circular [2014] No. 79). This exemption applies to A-shares traded via Stock Connect / Bond Connect. Therefore, this exemption is not enshrined in law but is provided via an administrative circular, which can be modified or revoked by the authorities. If modified, the risk of retroactive effect cannot be completely ruled out. That said, this temporary exemption has been in place for over 10 years.
d. Any CGT on bonds is not exempt under Circular 79 nor by Circular 34 and is subject to a 10% tax WHT.
