China ends dividend tax exemption for foreign individuals

Introduction

The exemption applied since 1994 and was introduced as part of policies aimed at attracting foreign investment. Its removal narrows a long-standing difference in the tax treatment of foreign and Chinese individual shareholders. The announcement concerns payments to individuals and does not introduce new rules for dividends paid to foreign corporate shareholders. The announcement took effect on 01 September 2026; companies should pay particular attention to the timing of distributions around that date.

Impact on FIEs

The reform creates withholding and filing obligations for FIEs. When a dividend is paid, the FIE must withhold the applicable IIT, remit the tax and file the relevant return by the 15th day of the following month. 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 set in a tax-authority payment notice. FIEs that previously distributed such dividends without withholding IIT will therefore need to update their payment and tax-compliance procedures. A review of the shareholder register can help identify affected individuals and assess whether additional documentation is needed before dividends are paid.

Applicable dividend rates

The 20% rate is the domestic Chinese rate, but a lower rate may apply under an applicable double taxation treaty. For example, an applicable treaty may cap China's tax on qualifying dividend payments at 10%, depending on its specific terms. Treaty eligibility depends on the individual's treaty residence and the applicable conditions, including beneficial ownership and anti-abuse rules where relevant. Under China's treaty-relief procedures, eligible non-residents must provide the required information and retain supporting records, including proof of tax residence. Foreign corporate shareholders generally pay 10%, unless the DTA specifies a lower percentage.

For foreign individual shareholders, the overall impact will depend not only on the Chinese rate but also on the tax rules in the country of residence. Where foreign tax credits are available, IIT paid in China may be creditable against tax due in that jurisdiction, potentially mitigating double taxation. The outcome will depend on the relevant domestic rules and any applicable treaty.

Conclusion

The change has both an immediate tax effect and a broader compliance impact. Foreign individual shareholders and FIEs may need to review planned dividend distributions, treaty eligibility, supporting documentation and withholding procedures before payments are made. With the long-standing exemption now removed, dividend planning requires attention to both Chinese domestic rules and cross-border tax treatment.

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With nearly a decade of experience in accounting, Dream is a Partner at MSA. Her expertise lies in tax and HR, where she plays a key role in helping clients navigate complex challenges. She also assists in other areas such as payroll compliance, corporate tax, and social security contributions.