China ends dividend tax exemption for foreign individuals after more than 30 years
A significant change in China’s taxation of foreign individual shareholders took effect on 1 September 2026.
Under Announcement No. 27, dividends paid by foreign-invested enterprises (FIEs) to foreign individuals are now generally subject to 20% individual income tax (IIT).
The exemption, which had been in place since 1994, was originally introduced to encourage foreign investment.
What does this mean for foreign shareholders and companies?
🔹 20% dividend tax: The standard domestic tax rate now applies to dividends distributed to foreign individuals.
🔹 Tax treaty relief: A lower withholding tax rate may apply under an applicable double taxation treaty, subject to the relevant conditions and documentation requirements.
🔹 New withholding obligations: FIEs must withhold and remit the applicable tax and file the relevant return by the 15th day of the month following the dividend payment.
🔹 Individual responsibility: If the FIE fails to withhold the tax, the foreign individual must pay it by 30 June of the following year or by the deadline specified by the tax authorities.
🔹 International tax implications: Depending on the shareholder’s country of residence, foreign tax credits may be available to mitigate double taxation.
Importantly, the announcement concerns foreign individual shareholders and does not introduce new rules for dividends paid to foreign corporate shareholders.
💡 What should companies and shareholders consider?
With the exemption now removed, foreign-invested enterprises and their individual shareholders may need to review planned dividend distributions, applicable tax treaty benefits, supporting documentation and withholding procedures.
The timing of dividend payments and the tax treatment in the shareholder’s country of residence are also important considerations.
🌍 At United Tax Network, we share international tax developments and insights from our member firms to help businesses and individuals stay informed about changes in cross-border taxation.
