China Introduces 20% Individual Income Tax on Dividends Paid to Foreign Individuals
Published 4 September 2026
Yu Du
On 1 September 2026, the Ministry of Finance and the State Taxation Administration issued Announcement No. 27 of 2026 on Individual Income Tax Policies for Dividends and Profit Distributions Received by Foreign Individuals (the “Announcement”). The Announcement took effect on the same date.
The Announcement ends the long-standing individual income tax exemption for dividends and profit distributions received by foreign individuals from foreign-invested enterprises in China. It also clarifies the applicable tax rate, withholding obligations and payment deadlines.
Background
Since 1994, foreign individuals receiving dividends or profit distributions from foreign-invested enterprises had generally been exempt from Chinese individual income tax under Item 8, Paragraph 2 of the Notice of the Ministry of Finance and the State Administration of Taxation on Certain Individual Income Tax Policy Issues (Cai Shui Zi [1994] No. 20).
This exemption had remained in place for more than three decades and had been relevant to foreign individuals holding direct equity interests in Chinese foreign-invested enterprises.
With effect from 1 September 2026, Announcement No. 27 repeals this exemption.
20% Individual Income Tax on Dividends
Under the Announcement, dividends and profit distributions received by a foreign individual from a foreign-invested enterprise are taxable as interest, dividends and profit distributions for Chinese individual income tax purposes.
The applicable tax rate is 20%.
Accordingly, foreign individuals who directly hold shares in foreign-invested enterprises in China may now bear Chinese individual income tax on dividend distributions that were previously exempt under Cai Shui Zi [1994] No. 20.
The change should therefore be taken into account when foreign shareholders and foreign-invested enterprises consider future profit distributions and the expected net amount payable to individual shareholders.
Withholding and Payment Obligations
A foreign-invested enterprise paying dividends or profit distributions to a foreign individual must withhold the individual income tax at the time of payment.
The enterprise must declare and pay the tax withheld by the 15th day of the month following the payment.
Foreign-invested enterprises should therefore ensure that individual income tax withholding is incorporated into their dividend approval, payment and tax filing procedures.
If the enterprise fails to withhold the tax, the foreign individual receiving the income must pay the tax by 30 June of the following year.
Where the tax authority issues a notice requiring payment within a specified period, the foreign individual must make the payment within that period.
Effective Date and Transitional Considerations
The Announcement applies from 1 September 2026. From the same date, Item 8, Paragraph 2 of Cai Shui Zi [1994] No. 20, which provided the former exemption, is repealed.
For dividend distributions approved, declared or paid around the effective date, the timing of the distribution may be relevant in determining the applicable tax treatment. Companies with pending or recently approved dividend distributions should therefore review the relevant payment arrangements and confirm the applicable withholding treatment.
Comment
The Announcement represents a material change for foreign individuals who directly hold shares in Chinese foreign-invested enterprises. Future dividend distributions may now be subject to 20% individual income tax, reducing the net amount received by individual shareholders and creating a corresponding withholding obligation for the paying enterprise.
Foreign-invested enterprises and their foreign individual shareholders should review planned dividend distributions and existing ownership arrangements in light of the new rules. Particular attention may be required for distributions around the effective date and for any broader tax implications arising from the shareholder’s specific circumstances.
The Announcement ends the long-standing individual income tax exemption for dividends and profit distributions received by foreign individuals from foreign-invested enterprises in China. It also clarifies the applicable tax rate, withholding obligations and payment deadlines.
Background
Since 1994, foreign individuals receiving dividends or profit distributions from foreign-invested enterprises had generally been exempt from Chinese individual income tax under Item 8, Paragraph 2 of the Notice of the Ministry of Finance and the State Administration of Taxation on Certain Individual Income Tax Policy Issues (Cai Shui Zi [1994] No. 20).
This exemption had remained in place for more than three decades and had been relevant to foreign individuals holding direct equity interests in Chinese foreign-invested enterprises.
With effect from 1 September 2026, Announcement No. 27 repeals this exemption.
20% Individual Income Tax on Dividends
Under the Announcement, dividends and profit distributions received by a foreign individual from a foreign-invested enterprise are taxable as interest, dividends and profit distributions for Chinese individual income tax purposes.
The applicable tax rate is 20%.
Accordingly, foreign individuals who directly hold shares in foreign-invested enterprises in China may now bear Chinese individual income tax on dividend distributions that were previously exempt under Cai Shui Zi [1994] No. 20.
The change should therefore be taken into account when foreign shareholders and foreign-invested enterprises consider future profit distributions and the expected net amount payable to individual shareholders.
Withholding and Payment Obligations
A foreign-invested enterprise paying dividends or profit distributions to a foreign individual must withhold the individual income tax at the time of payment.
The enterprise must declare and pay the tax withheld by the 15th day of the month following the payment.
Foreign-invested enterprises should therefore ensure that individual income tax withholding is incorporated into their dividend approval, payment and tax filing procedures.
If the enterprise fails to withhold the tax, the foreign individual receiving the income must pay the tax by 30 June of the following year.
Where the tax authority issues a notice requiring payment within a specified period, the foreign individual must make the payment within that period.
Effective Date and Transitional Considerations
The Announcement applies from 1 September 2026. From the same date, Item 8, Paragraph 2 of Cai Shui Zi [1994] No. 20, which provided the former exemption, is repealed.
For dividend distributions approved, declared or paid around the effective date, the timing of the distribution may be relevant in determining the applicable tax treatment. Companies with pending or recently approved dividend distributions should therefore review the relevant payment arrangements and confirm the applicable withholding treatment.
Comment
The Announcement represents a material change for foreign individuals who directly hold shares in Chinese foreign-invested enterprises. Future dividend distributions may now be subject to 20% individual income tax, reducing the net amount received by individual shareholders and creating a corresponding withholding obligation for the paying enterprise.
Foreign-invested enterprises and their foreign individual shareholders should review planned dividend distributions and existing ownership arrangements in light of the new rules. Particular attention may be required for distributions around the effective date and for any broader tax implications arising from the shareholder’s specific circumstances.