China Officially Imposes 20% Income Tax on Dividends for Foreign Individual Shareholders as of September 1
The Ministry of Finance and the State Taxation Administration jointly issued a new regulation [Announcement No. 27 of 2026 by the Ministry of Finance and the State Taxation Administration].
Effective from September 1, 2026, dividend income obtained by foreign individuals from foreign-invested enterprises in China will be subject to individual income tax at a rate of 20%.
For more than three decades, dividends distributed by foreign-invested enterprises to foreign individual shareholders were not subject to individual income tax within China.
This dividend tax exemption policy, which had been in place for over 30 years, has officially come to an end.
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Impact on Foreign Business Operators in China
With the new regulation now in effect, this situation has fundamentally changed:
- Withholding obligation: When a foreign-invested enterprise pays dividends to a foreign individual, it must withhold the tax and complete the filing and remittance within 15 days of the month following the dividend payment.
- Fallback tax liability: The enterprise may fail to withhold the tax. In that case, the foreign individual must file and pay the tax on their own. The deadline is June 30 of the year following receipt of the income. If the tax authority separately specifies a payment deadline, the shareholder must pay within that deadline.
- Legal basis: This announcement takes effect on September 1, 2026, and simultaneously repeals Article 2, Item (8) of the 1994 “Notice of the Ministry of Finance and the State Taxation Administration on Several Policy Issues Concerning Individual Income Tax” (Cai Shui Zi [1994] No. 20).
Concluding!
Foreign individual in foreign-invested enterprises should take this policy change seriously. So should company finance teams. When planning equity structures for investment into China, factor in the end of this exemption. Make sure tax compliance is properly managed.
