On July 31, 2025, the Ministry of Finance (MoF) and State Taxation Administration (STA) of the People’s Republic of China (PRC) jointly released Public Notice No. 4 of 2025 (Notice 4),^[1] which addresses the Value-Added Tax (VAT) policy on bond interest income.

Notice 4 Overview

Notice 4 reinstates VAT on interest income derived from central and local government bonds, as well as financial bonds,^[2] that are newly issued on or after August 8, 2025. This represents a departure from the longstanding policy, dating back to the 1990s, under which government bonds were exempt from tax pursuant to directives from the State Council and subsequent circulars issued by the MoF and STA.

Importantly, Notice 4 provides that interest income from bonds issued prior to August 8, 2025, including any subsequent tranches or extensions, continue to be exempt from VAT until maturity.

Considerations for Foreign Investors

Under MoF and STA Public Notice [2021] 34 (Notice 34), foreign institutional investors are exempt from VAT and corporate income tax on interest income derived from China’s domestic bond market. These exemptions remain in effect until December 31, 2025.

Notice 4 does not specifically repeal Notice 34. Accordingly, it is reasonable to conclude that foreign investors may continue to enjoy the exemption from VAT under Notice 34 until year-end. To date, no official announcement has been made on whether this exemption will be extended beyond that date.

Next Steps

Whether the VAT exemption under Notice 34 will be extended is a key issue for foreign investors and should be closely monitored. Investors are also advised to keep abreast of developments regarding the implementation of China’s new VAT Law,^[3] draft guidance for which has recently been released by the .

Foreign investors should maintain a watch on these developments and consult with advisors to assess potential impacts.

[1] Ministry of Finance, “State Administration of Taxation Public Notice No. 4 of 2025” (Chinese language), July 31, 2025, https://shanghai.chinatax.gov.cn/zcfw/zcfgk/zzs/202508/t477228.html

[2]Article 1(5) of Caishui [2016] 70 defines financial bonds as securities (with agreed principal and interest payments) issued by financial institutions (which are established in accordance with the law of the PRC) in the national interbank and exchange bond markets.

[3]Our comments on China’s VAT law may be accessed in English or Chinese here. Felix Lee et al., “The China VAT Law: A New Era,” Alvarez & Marsal, January 15, 2025, https://www.alvarezandmarsal.com/zh-hans/insights/zhongguozengzhishuijinruxinshidai