China Extends Tax Exemptions for Overseas Investors in Domestic Bond Market
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China’s Ministry of Finance and State Taxation Administration announced on January 15, 2026, that overseas institutions investing in the domestic bond market will continue to enjoy exemptions from corporate income tax (CIT) and value-added tax (VAT) on interest income. The policy is effective from January 1, 2026, to December 31, 2027.
This extension builds on the original 2021 policy, which was first introduced on November 7, 2021, for the period through December 31, 2025. The 2021 initiative was part of a broader strategy to internationalize China’s bond market, improve its liquidity, attract stable foreign capital, and diversify investor bases. It applied to both onshore bonds issued in China (CNY-denominated) and overseas-issued Chinese sovereign and local government bonds, providing a clear and predictable tax framework for cross-border fixed-income investment.
Under the current extension, interest income from overseas investors in both domestically issued bonds and offshore government bonds remains exempt from CIT and VAT. The measure strengthens market access, enhances yield attractiveness for global institutional investors, and supports long-term capital inflows, which are crucial for promoting the integration of China’s bond market with international financial markets.
Analysts note that the policy reinforces China’s commitment to financial liberalization and regulatory predictability, facilitating efficient allocation of foreign capital in key sectors and supporting broader economic stability amid ongoing market reforms.
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