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In a shocking statement on Monday, Beijing announced that it would remove personal income tax on dividends for shareholders holding stocks for more than one year. The announcement comes after a shaky period in the Chinese stock market, which has fallen approximately 40% since its April 2015 highs and is currently down 5% YTD.
Lowering the long-term dividend tax to zero is just one in a series of dramatic fiscal policy moves to help stabilize a deteriorating stock market:
In recent weeks, the U.S. stock markets have mimicked the performance of Asian markets day-over-day. However, recently that relationship has decayed. Global investors are concerned about China’s ability to prop up their floundering market, and some have began to doubt that China’s financial policies are enough to delay further declines in the market.
Lowering dividend taxes to zero for long-term investors is a clear call for additional foreign investment to help stabilize the Chinese financial markets. A dividend tax of zero makes the Chinese stock market the cheapest market for global investors with dividend capture strategies. While there are still concerns about the general price levels in the Chinese stock markets, for a long-term international investor taking advantage of this unprecedented move could be a hay day indeed.
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