Since 1 September 2026, a Chinese foreign-invested company that pays a dividend to a foreign individual shareholder must withhold 20% individual income tax. The Ministry of Finance and the State Taxation Administration ended a 1994 exemption with a three-paragraph announcement and no transition period. Before recalculating anything, look at your shareholder register: if the shares are held by a foreign company, the exemption never applied to you and nothing has changed.
- Announcement No. 27 of 2026 (Ministry of Finance and State Taxation Administration, dated and effective 1 September 2026) taxes dividends that foreign individuals receive from foreign-invested enterprises at 20%, and repeals Article 2(8) of Caishuizi [1994] No. 20.
- Foreign parent companies are not affected. Dividends paid to a non-resident company remain subject to withholding corporate income tax at 10%, reducible by treaty, exactly as before.
- The paying company withholds at the time of payment and files by the 15th of the following month. If it does not, the individual must pay by 30 June of the following year — and the company faces a fine of 50% to three times the tax it failed to withhold.
- There is no grandfathering. A dividend resolved before 1 September but paid afterwards is taxed under the new rule.
- Treaty relief is still possible, but it is self-assessed, must be documented, and depends on the individual being the beneficial owner of the dividend.
1. What Announcement No. 27 actually says
The announcement is short enough to summarise in full. First, dividends and bonuses that foreign individuals obtain from foreign-invested enterprises are taxed under the category of "interest, dividends and bonuses" at a rate of 20%. Second, the foreign-invested enterprise must withhold the tax when it pays the dividend and file the return within 15 days after the end of the month of payment; where it has not withheld, the individual must pay the tax by 30 June of the year after the income was received, or by any earlier deadline the tax authority sets in a notice. Third, the announcement applies from 1 September 2026, and on the same day the dividend exemption in Article 2(8) of the 1994 Circular on Several Policy Issues concerning Individual Income Tax is repealed.
That exemption had stood since 1994, when attracting foreign capital was the priority. Commentary around the release, including from the Beijing National Accounting Institute, framed its removal as a matter of tax fairness between domestic and foreign investors, and as closing a route by which investors could obtain a tax advantage simply by holding a foreign nationality. The practical effect is that foreign individual shareholders of foreign-invested companies are now taxed on dividends in the same way as Chinese individual shareholders already were.
2. Who is caught — and who is not
The announcement reaches one relationship only: a foreign individual receiving a dividend directly from a foreign-invested enterprise. That is narrower than the headlines suggest. Most European and US groups hold their Chinese subsidiary through a company, and a dividend to a foreign company has always been taxed under the corporate income tax regime, not the individual one.
| Shareholder | Before 1 September 2026 | From 1 September 2026 |
|---|---|---|
| Foreign individual holding shares in a foreign-invested enterprise directly | Exempt | 20% individual income tax, withheld by the company; treaty relief may reduce it |
| Foreign parent company (non-resident enterprise) | 10% withholding corporate income tax; commonly 5% under a treaty | Unchanged |
| Chinese individual shareholder in an unlisted company | 20% | Unchanged |
The owners who are affected tend to be founder-owned businesses: a trading company, consultancy or small manufacturer in which a foreign national holds the equity personally, or a joint venture with an individual foreign partner. For them the change is immediate and material — one fifth of every dividend now stays in China unless a treaty says otherwise.
One point remains genuinely unsettled: residents of Hong Kong, Macao and Taiwan. The announcement speaks only of "foreign individuals" and does not define the term. China Briefing reads the change as also removing the relief that was extended to those residents on a treated-as-foreign basis; other Chinese commentary notes that in tax practice "foreign individuals" generally does not include them. Until there is official clarification, confirm the position with the company's in-charge tax bureau before paying — and do not assume either answer.
3. Timing: the payment date decides
The announcement contains no transitional provision. Because the withholding obligation attaches when the enterprise pays the dividend, the working reading — stated expressly by China Briefing — is that the payment date governs, not the date of the board or shareholder resolution. A distribution declared in June but paid in September is taxed at 20%.
That matters for companies that declared a dividend earlier in the year and have not yet remitted it, often because the annual audit, the tax settlement or the bank's documentary checks were still running. Those amounts should now be treated as taxable, and the net figure the shareholder will receive recalculated before the funds move. A resolution cannot be backdated into the old regime, and attempts to recharacterise the payment as something else carry their own tax and foreign-exchange risk.
4. What the paying company now has to do
The burden sits with the Chinese company. When it pays a dividend to a foreign individual it must deduct the tax, pay the net amount, and file and remit by the 15th of the following month. The prerequisites for paying a dividend at all — audited profit, losses made good, the statutory reserve — are unchanged; the withholding step is new for this class of shareholder.
Getting it wrong is expensive for the company, not only for the shareholder. Under Article 69 of the Law on the Administration of Tax Collection, where a withholding agent fails to withhold tax it should have withheld, the tax authority recovers the tax from the taxpayer and fines the withholding agent between 50% and three times the amount not withheld. The individual's own fallback deadline — 30 June of the following year — does not protect the company from that penalty.
5. Can a tax treaty reduce the 20%?
Potentially. Where the individual is resident in a jurisdiction that has a double-tax agreement with China, the treaty's dividend article may cap Chinese tax below 20%. Three cautions apply.
- The lowest treaty rates are usually for companies. The 5% rates found in many of China's treaties generally require the recipient to be a company holding a substantial stake, typically at least 25%. An individual shareholder should look at the treaty's general dividend rate instead, and check it treaty by treaty.
- Relief is self-assessed. Under State Taxation Administration Announcement No. 35 of 2019, in force since 1 January 2020, a non-resident taxpayer judges its own eligibility, claims the benefit when the tax is declared through the withholding agent by submitting an information reporting form, and retains the supporting documents for later inspection — a tax residence certificate and evidence of beneficial ownership among them. Nothing is pre-approved, so an unsupported claim can be challenged in a later review and the tax recovered.
- Beneficial ownership is tested. Treaty dividend rates are available only to the beneficial owner of the income. Announcement No. 9 of 2018 sets out how the Chinese tax authorities assess whether a recipient genuinely owns and controls the dividend.
Whatever rate applies, Chinese tax paid on the dividend can generally be credited against the shareholder's home-country tax on the same income, subject to that country's own rules. For a shareholder in a higher-tax jurisdiction, the new Chinese tax may therefore change the timing and location of tax more than the overall burden — a calculation worth doing before any restructuring decision.
6. What to do now
- Read the register. Identify every individual shareholder who is not a Chinese national, and flag any resident of Hong Kong, Macao or Taiwan for confirmation with the tax bureau.
- Stop any payment run built on the old exemption. Declared-but-unpaid dividends are now taxed on payment; update the payment approval so that the withholding and the filing by the 15th are part of the process.
- Assemble the treaty file before paying, not after. Residence certificate, beneficial-ownership support and the reporting form should be ready when the tax is declared.
- Do not rush a holding-company restructuring. Moving the shares from an individual into a company is itself a transfer of Chinese equity, and an individual's gain on such a transfer is taxable in China at 20%, with the tax authorities able to challenge a price they consider unreasonably low. A holding vehicle created mainly to reach a treaty rate is also exactly what the beneficial-ownership test is designed to examine. Model the full cost, including the transfer, before moving anything.
- Revisit the distribution policy. The case for paying out every year is weaker for an individual shareholder than it was in August; retaining profit for expansion, and the other channels for moving money out, deserve a fresh look alongside the reinvestment tax credit and the rules on getting profits out of China.
Frequently asked questions
Yes, since 1 September 2026. Under Announcement No. 27 of 2026, dividends a foreign individual receives from a foreign-invested enterprise are taxed at 20% individual income tax, withheld by the paying company. The exemption that had applied since 1994 was repealed on the same day, with no transition period.
No. The announcement covers foreign individuals only. A dividend paid to a foreign parent company is still subject to withholding corporate income tax at 10%, which a treaty can reduce, commonly to 5% for a company holding at least 25%. That treatment has not changed.
No. There is no grandfathering provision, and because the withholding obligation arises when the dividend is paid, the payment date is what counts. A dividend resolved before 1 September 2026 but paid on or after that date should be treated as taxable at 20%.
Possibly. If the shareholder is resident in a treaty country, the treaty’s dividend article may cap Chinese tax below 20%, although the lowest rates are usually reserved for corporate shareholders. Relief is self-assessed under STA Announcement No. 35 of 2019: the claim is made when the tax is declared and supporting documents, including evidence of beneficial ownership, must be retained for inspection.
The individual must pay the tax by 30 June of the following year, or by an earlier deadline set by the tax authority. The company, as withholding agent, can be fined between 50% and three times the tax it failed to withhold under Article 69 of the Law on the Administration of Tax Collection.
Sources
- Ministry of Finance — Announcement No. 27 of 2026 on individual income tax on dividends received by foreign individuals (official text, Chinese; dated and effective 1 September 2026).
- State Taxation Administration policy database — the same announcement (official text, including the tax-authority notice deadline for unwithheld tax).
- China Briefing — China ends dividend tax exemption for foreign individuals (payment date governs; treaty relief and beneficial ownership; Hong Kong, Macao and Taiwan residents).
- Fidinam — China ends dividend tax exemption for foreign individuals (no transition period; corporate shareholders unaffected).
- Law of the PRC on the Administration of Tax Collection (official text, Chinese; Article 69 on failure to withhold).
- China Briefing — requirements for non-resident taxpayers claiming treaty benefits (STA Announcement No. 35 of 2019: self-assessment, claim on filing, retention of documents).
- China Briefing — beneficial ownership and the safe harbour rule (STA Announcement No. 9 of 2018).
- China Briefing — tax liabilities for equity transfers in China (20% on an individual’s gain; challenge of unreasonably low prices).
- Internal: getting profits out of China; China’s 10% reinvestment tax credit; WFOE, JV or representative office; setting up a WFOE.
This article is general information for foreign companies, not legal advice on any specific matter. Rules and practice change; please take advice on your facts.