China Ends Dividend Tax Exemption for Foreign Individuals; 20% Rate Applies

China’s Ministry of Finance and State Taxation Administration ended the dividend tax exemption for foreign individuals on September 1, 2026. Dividends and bonuses paid by foreign-invested enterprises now face a unified 20% individual income tax rate.

The change took effect the day the two agencies announced it. It applies to dividend income received under China’s “interest, dividends, and bonus income” category.

For tax year 2026, the new treatment covers payments made from September 1 onward. The measure formally withdraws the benefit created by a 1994 notice.

The companies paying the income carry the first compliance obligation. They must withhold and remit the tax by the 15th day of the month after making the payment.

If no withholding occurs, the recipient must pay the amount directly by June 30 of the following year. That deadline makes June 30, 2027, the first self-payment date for an affected 2026 payment when the enterprise does not withhold.

Li Yan, an official who explained the policy’s impact, said recipients may be able to claim a credit in their home countries for tax paid in China.

“With the exemption lifted, the individual income tax paid in China can be credited against their home-country tax liability. Therefore, the actual tax burden will not increase.”

The new rule replaces a 1994 dividend benefit

China had maintained the exemption since 1994. The earlier policy sought to encourage reform, opening-up, and foreign investment.

Ministry of Finance and State Taxation Administration Announcement No. 27 of 2026 repeals that treatment. It also revokes Article 2, Item (8) of the 1994 notice, the provision that granted the dividend benefit.

The repeal changes the collection point as well as the rate. Instead of receiving qualifying dividends without Chinese individual income tax, recipients now encounter a standard charge when the enterprise distributes the money.

That charge applies to dividends and bonus income from foreign-invested enterprises. The rule described in the announcement concerns that income category, rather than every type of payment a foreign resident might receive in China.

Officials say the change closes a route to large distributions

Chinese reports said the former arrangement could create loopholes. In some cases, entities changed into foreign-invested enterprises and then made large dividend distributions to capture the tax benefit.

Ending the exemption is intended to standardize treatment. Authorities also linked the measure to tax fairness and the construction of a unified national market.

State-media explanations described the adjustment as part of a broader effort to streamline preferential tax policies. The policy also supports the “unification of the tax system.”

The government’s stated rationale combines revenue administration with equal treatment. Companies still have to meet the withholding deadline, even when the recipient expects to seek relief in another country.

Home-country credits may reduce the overall burden

Chinese sources emphasized that recipients who are tax residents elsewhere may still receive foreign tax credits. Those credits could offset the amount paid in China against their home-country tax liability.

Li Yan’s explanation focused on the combined result across jurisdictions. China collects the tax, while the recipient may use that payment when calculating a home-country obligation.

The availability and effect of a credit depend on the rules in the other country. The Chinese explanation said the actual burden will not increase where the China payment can be credited against home-country tax.

The dividend change does not end a separate benefit for some employment-related expenses. Tax-free allowances for items such as housing and children’s education remain valid through December 31, 2027.

That policy remains separate. The new dividend rule does not cancel those allowances.

The first affected payments therefore create two dates to track: the enterprise’s remittance deadline, the 15th day of the following month, and the recipient’s June 30 deadline when withholding did not occur.

This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA about your specific situation.