China Ends Dividend Tax Exemption for Foreign Individuals: 20% IIT Rate Applies from 1 September 2026

中国终止外籍个人股息免税：20%个人所得税税率自2026年9月1日起适用

Effective date: 1 September 2026

China has ended a long-standing individual income tax exemption for dividends received by foreign individuals from foreign-invested enterprises (FIEs) in China. Under the Announcement of the Ministry of Finance and the State Taxation Administration [2026] No. 27, such dividends are now subject to individual income tax (IIT) at the statutory rate of 20%, subject to any applicable tax treaty relief. [1]

The change is relevant to foreign shareholders receiving dividends from Chinese foreign-invested enterprises, as well as companies responsible for withholding tax. This article explains the new rule, the payment and filing obligations, and the circumstances in which a tax treaty may affect the final tax liability.

1. What Has Changed?

The new announcement makes three principal changes:

• Termination of the previous exemption. The preferential provision in Article 2(8) of Notice on Certain Individual Income Tax Policies (Caishui [1994] No. 20) has been repealed.

• A 20% statutory tax rate. Dividends received by foreign individuals from FIEs are subject to IIT under the category of “interest, dividends and bonuses.”

• Withholding and filing obligations. When an FIE pays dividends to a foreign individual, it must withhold the tax and file the relevant tax return within 15 days of the month following payment. If the tax has not been withheld, the individual must generally pay it by 30 June of the year following the year in which the income is received, unless the tax authority specifies a different deadline. [1]

The announcement took effect on 1 September 2026. It does not, however, expressly resolve every possible transitional scenario, including dividends declared before that date but paid afterwards.

2. How Much Tax Is Payable?

Under the domestic-law rate, the tax on dividends is generally calculated at 20% of the gross dividend, before any applicable treaty relief. The statutory rate for income classified as “interest, dividends and bonuses” is also specified in Article 3 of the Individual Income Tax Law of the People’s Republic of China. [2]

For example, if a foreign individual receives a dividend of RMB 1,000,000 and no reduced rate or exemption applies, the illustrative calculation is: gross dividend RMB 1,000,000; applicable domestic-law rate 20%; illustrative IIT payable RMB 200,000; net dividend after IIT RMB 800,000.

This example assumes that the full domestic-law rate applies and that no tax treaty relief is available. The actual liability should be assessed in light of the applicable treaty, the taxpayer’s circumstances and the relevant tax procedures.

3. Does the Rule Apply to Both Resident and Non-Resident Foreign Individuals?

The 2026 announcement expressly addresses foreign individuals receiving dividends from FIEs and does not set out separate rates for resident and non-resident foreign individuals. It is therefore important to distinguish the announcement’s dividend-tax rule from the broader rules governing an individual’s Chinese tax residence and taxable income.

Foreign nationality alone does not determine whether an individual qualifies for benefits under a particular tax treaty. For treaty purposes, residence is assessed under the relevant treaty provisions and the applicable Chinese rules.

Foreign shareholders should therefore avoid assuming either that every foreign individual will ultimately bear tax at 20%, or that holding a particular nationality automatically entitles them to a reduced treaty rate. The applicable treaty and the individual’s eligibility must be reviewed separately.

4. Can a Tax Treaty Reduce the 20% Rate?

Potentially, yes. China’s tax treaties may limit the tax that China can impose on dividends paid to a qualifying resident of the other contracting jurisdiction. The applicable rate depends on the specific treaty and the conditions it imposes.

The State Taxation Administration’s official explanation of the dividend article in tax treaties notes that many treaties provide a 10% limit, while some provide a lower rate for qualifying corporate shareholders meeting specified direct-ownership requirements. The conditions and rates vary between treaties. [3]

A reduced rate of 5%, where provided, commonly applies to a qualifying company that is the beneficial owner of the dividends and directly holds the required percentage of the dividend-paying company’s capital. A 25% ownership threshold appears in many treaties, but it is not a universal rule; the actual treaty may impose different conditions. These corporate-shareholder provisions should not be assumed to apply to an individual shareholder. [3]

How are treaty benefits claimed? Under the Administrative Measures for Non-Resident Taxpayers Claiming Tax Treaty Benefits, treaty benefits generally follow a “self-assessment, claim at filing, and retention of supporting documents for inspection” approach. An eligible taxpayer may claim benefits when filing a tax return or through the withholding agent’s withholding-tax filing, while retaining the required supporting documentation for possible review by the tax authorities. [4]

In practice, the relevant parties should check:

• Whether the individual qualifies as a tax resident of the treaty jurisdiction under the applicable treaty;

• Whether the relevant dividend article provides a reduced rate or exemption;

• Whether any beneficial-ownership or other eligibility requirements apply;

• What forms, declarations and supporting documents must be provided and retained; and

• Whether the withholding agent has sufficient information to apply the claimed treatment when filing.

Treaty eligibility should be verified against the particular treaty and the taxpayer’s facts before a reduced rate is applied.

5. What If Dividends Were Declared Before 1 September 2026 but Paid Afterwards?

This issue requires particular care.

The 2026 announcement establishes an effective date of 1 September 2026 and specifies withholding obligations when an FIE pays dividends. However, it does not expressly set out a comprehensive transitional rule for dividends declared before that date but paid afterwards. [1]

Accordingly, the declaration date alone should not be treated as conclusive evidence that the former exemption continues to apply. Nor should every transitional case be regarded as definitively resolved solely by reference to the payment date without examining the relevant facts and applicable rules.

For dividends declared before 1 September but paid on or after that date, the company and shareholder should review the dividend resolution, the payment arrangements and the relevant supporting records. Where the tax treatment remains uncertain, they should seek clarification from the competent tax authority or qualified Chinese tax counsel before payment or filing.

6. What Should Foreign-Invested Enterprises Do?

FIEs paying dividends to foreign individuals should review their dividend-payment and withholding procedures in light of the new announcement. Practical steps include:

(1) Identify the recipients. Confirm which dividend recipients are foreign individuals and distinguish them from corporate shareholders.

(2) Review the applicable tax treatment. Consider the 20% domestic-law rate and assess whether a particular recipient may qualify for treaty relief.

(3) Collect supporting information. Obtain and retain the relevant tax-residence information, declarations and other documents required for any treaty claim.

(4) Update withholding procedures. Ensure that dividend payments, withholding calculations and tax filings are coordinated with the statutory deadlines.

(5) Review transitional dividends. Identify dividends declared before 1 September 2026 but paid afterwards, and obtain case-specific advice where necessary.

(6) Maintain records. Keep the relevant resolutions, payment records, tax calculations, declarations and supporting documents available for review.

These steps can help companies identify potential withholding issues and reduce the risk of filing errors. The precise obligations should be confirmed against the applicable rules and the company’s circumstances.

7. Conclusion

From 1 September 2026, dividends received by foreign individuals from Chinese foreign-invested enterprises are subject to a 20% statutory IIT rate under the new announcement, replacing the previous exemption provided by the specified 1994 policy provision. However, the final tax treatment may depend on whether an applicable tax treaty provides relief and whether the recipient meets the relevant requirements.

Foreign shareholders and FIEs should review dividend arrangements, withholding procedures and treaty eligibility before making or receiving dividend payments. Particular care is warranted for dividends declared before the effective date but paid afterwards, because the announcement does not expressly resolve every transitional scenario.

References

[1] Ministry of Finance of the People’s Republic of China & State Taxation Administration. (2026, September 1). Announcement on Individual Income Tax Policies Concerning Dividends and Bonuses Received by Foreign Individuals (Announcement [2026] No. 27). Official text published in the State Taxation Administration’s Policy and Regulation Database. https://fgk.chinatax.gov.cn/zcfgk/c102416/c5252107/content.html

[2] National People’s Congress of the People’s Republic of China / State Taxation Administration. Individual Income Tax Law of the People’s Republic of China, Article 3. Official text published by the State Taxation Administration. https://www.chinatax.gov.cn/n810219/n810744/n3752930/n3752974/c3970366/content.html

[3] State Taxation Administration of the People’s Republic of China. (2015, June 29). Interpretation of Tax Treaty Provisions (VII): Dividends. https://www.chinatax.gov.cn/chinatax/n810219/n810744/n1671176/n1671186/c1707032/content.html

[4] State Taxation Administration of the People’s Republic of China. (2019, October 14). Announcement on the Administrative Measures for Non-Resident Taxpayers Claiming Tax Treaty Benefits (Announcement [2019] No. 35). Official text published in the State Taxation Administration’s Policy and Regulation Database. https://fgk.chinatax.gov.cn/zcfgk/c100012/c5194891/content.html

Disclaimer: This article is for general informational purposes only and does not constitute legal or tax advice. The applicable tax treatment depends on the relevant laws, tax treaty, supporting documentation and facts of each case. Professional advice should be obtained before making a tax filing or payment decision.