Is it illegal for a one-person limited liability company to deduct total income from total expenses and pay dividends to shareholders?

Not illegal. Article 35 of the Company Law of People's Republic of China (PRC): Shareholders shall receive dividends in proportion to their paid-in capital contributions; When the company increases its capital, the shareholders have the right to subscribe the capital in proportion to the paid-in capital. However, as a one-person limited liability company is the sole beneficiary of the company, they have the right to decide who to allocate other expenses to or how to distribute dividends.