(Yicai) Sept. 2 -- China has removed a tax exemption on dividends and bonuses earned by foreign individuals from foreign-invested businesses in the country, ending a policy that had been in place for more than three decades and making the income subject to the standard 20 percent levy.

As of yesterday, foreign-invested enterprises that pay interest, dividends, and bonuses to foreigners must withhold the tax and file the returns by the 15th day of the following month, the Ministry of Finance and the State Taxation Administration said the same day. If a business fails to withhold the tax, then the beneficiary must pay it by June 30 of the following year.

China introduced the exemption in 1994 to encourage foreign investment, Ge Yuyu, associate professor at the Shanghai National Accounting Institute, told Yicai.

As the economy and society have developed, the tax system puts greater emphasis on fairness and uniformity, Ge said, adding that the removal of the preferential policy will also help close loopholes that some individuals were able to exploit to avoid taxes by changing their nationality.

For foreign nationals from countries that allow foreign-tax credits, the impact of the change may be limited because taxes paid in China can be credited against tax liabilities in their home countries, Ge said. Under the previous policy, despite avoiding tax on the income earned in China, they were often required to pay the difference at home, he said.

Editor: Futura Costaglione