China has ended a specific tax exemption that had stood for more than 30 years. From 1 September 2026, dividends and bonuses received by foreign individuals from foreign-invested enterprises are, in principle, subject to individual income tax under China’s Individual Income Tax Law as “interest, dividend and bonus income”, at a domestic-law rate of 20%. The foreign-invested enterprise paying the dividend carries the withholding obligation; where withholding is not completed, the foreign individual may also need to file and pay the tax directly.
That said, 20% does not automatically equal the final tax burden for every non-resident individual shareholder. Where an applicable tax treaty or arrangement limits China’s taxing rights, and the individual meets the tax residence, beneficial ownership and record-retention conditions, the effective rate may be lower than 20%.
What has changed?
On 1 September 2026 the Ministry of Finance and the State Taxation Administration issued Announcement No. 27 of 2026. The announcement provides that:
- Dividends and bonuses received by foreign individuals from foreign-invested enterprises are taxed as “interest, dividend and bonus income” under individual income tax, at a rate of 20%.
- When a foreign-invested enterprise pays dividends or bonuses to a foreign individual, it must withhold the tax and file within 15 days of the month following payment of the income.
- Where the foreign-invested enterprise has not withheld the tax, the foreign individual receiving the dividend or bonus must pay it by 30 June of the year following receipt of the income; where the tax authority issues a notice setting a deadline, that deadline applies.
- The announcement takes effect from 1 September 2026 and simultaneously repeals Article 2(8) of Cai Shui Zi (1994) No. 20.
The 1994 provision that has been repealed had temporarily exempted from individual income tax the dividends and bonuses that foreign individuals received from foreign-invested enterprises. The direct effect of Announcement No. 27 is to end that specific exemption — tied to a specific source and a specific status — rather than to remove every exemption or treaty benefit that a foreign individual might enjoy.
20% is the domestic-law rate, not necessarily the final burden
The Individual Income Tax Law of the People’s Republic of China treats interest, dividend and bonus income as taxable income and applies a flat rate of 20%. So, absent any overriding rule or preferential treatment, 20% is the domestic-law starting point for calculating tax on this category of income.
Cross-border investment, however, also turns on whether a tax treaty or arrangement exists between China and the individual’s place of tax residence. Under the Administrative Measures for Non-Resident Taxpayers Claiming Treaty Benefits, eligible non-resident taxpayers may self-assess, claim treaty benefits when filing, and retain the relevant documentation for inspection; once the withholding agent has obtained the prescribed documentation, it should withhold in accordance with the treaty.
In practice this means a company cannot decide the rate by looking only at a shareholder’s passport or mailing address. At minimum it needs to confirm:
- whether the shareholder is an individual rather than an offshore company;
- where the shareholder was tax resident in the relevant year;
- whether an applicable tax treaty or arrangement exists;
- whether the shareholder is the beneficial owner of the dividend;
- whether the certificate of tax residence and other supporting records are complete and valid.
If those conditions are not met, or the documentation is insufficient, the company will generally need to apply China’s domestic law first. A shareholder’s verbal assertion is not a basis for applying a lower treaty rate.
Can a Hong Kong individual shareholder qualify for the 10% cap?
Take Hong Kong as an example. The Arrangement between the Mainland and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion sets a cap on source-country taxation of dividends. For an individual beneficial owner, the relevant figure is generally the 10% cap, rather than the 5% cap that may apply to corporate shareholders holding a given proportion of capital.
The 10% is not automatic. A Hong Kong individual will normally still need to establish Hong Kong tax residence, meet the beneficial-owner and related conditions, and submit or retain the required documentation under the current administrative measures. If the conditions of the Arrangement are not met, or the company does not obtain sufficient documentation at the time of withholding, the 20% domestic-law rate may still be applied first.
The more accurate statement is therefore: a Hong Kong tax-resident individual shareholder who satisfies the Arrangement and the procedural conditions may be able to limit China’s tax on that dividend to 10%. It cannot be reduced to “Hong Kong shareholders pay 10%”.
What companies and individuals each need to do
| Party | Main obligation | Key deadline |
|---|---|---|
| Foreign-invested enterprise | Withhold on payment of dividends and bonuses; verify shareholder status, place of tax residence and treaty documentation | File within 15 days of the month following payment of the income |
| Foreign individual | Provide tax residence and treaty-benefit documentation; pay directly where the company has not withheld | In principle by 30 June of the year following receipt; where a deadline notice is issued, by that deadline |
For companies, the practical work is not deciding the rate on payment day. It is moving the tax review forward into the dividend resolution and payment-preparation stage. The shareholder register, board or shareholder resolutions, payment dates, certificates of tax residence, the treaty-benefit assessment and the withholding filing should form a traceable document chain.
Individual shareholders should not assume the company will complete every procedure on their behalf. If the company fails to withhold, under-withholds, or does not apply the treaty rate because documentation was incomplete, the individual may still carry responsibility for paying, filing or following up afterwards.
Questions that still await clarification
Announcement No. 27 is short. At least two categories of practical question still depend on subsequent guidance or case-by-case assessment.
First, whether individuals from Hong Kong, Macao and Taiwan fall uniformly within the announcement’s reference to “foreign individuals”. The announcement itself provides no unified definition, and past tax rules have not treated the relevant statuses entirely consistently. At this stage it is not appropriate to include or exclude Hong Kong, Macao and Taiwan individuals directly and unconditionally.
Second, how to treat a dividend declared before 1 September 2026 but actually paid on or after that date. The announcement states only that it takes effect from 1 September 2026; it sets out no dedicated transitional provision. Companies should retain documentation of the resolution, the accrual entry, the payment and the time at which the shareholder received the income, and confirm the treatment of specific payment arrangements with the competent tax authority or a professional adviser.
Frequently asked questions
1. Are all dividends received by foreign individuals from Chinese companies now taxed at 20%?
No. Announcement No. 27 addresses dividends and bonuses received by foreign individuals from foreign-invested enterprises, for which the domestic-law rate is 20%. Where an individual meets the conditions for an applicable tax treaty or arrangement, the actual China tax may be limited by a lower rate cap.
2. Can a Hong Kong individual shareholder always use the 10% rate?
Not necessarily. The 10% is the source-country cap worth noting under the Mainland–Hong Kong Arrangement, but it normally requires Hong Kong tax residence, beneficial ownership and retention of supporting records. Where documentation is incomplete or the conditions are not met, 10% cannot be applied automatically.
3. If a company fails to withhold, is the responsibility the company’s alone?
No. The company carries the withholding obligation, but the announcement also provides that where the company has not withheld, the foreign individual receiving the income should in principle pay by 30 June of the following year; where the tax authority issues a separate deadline notice, that deadline applies.
Conclusion
The core of Announcement No. 27 is not simply that an exemption becomes a 20% charge. It is that the status, place of tax residence and treaty eligibility of foreign individual shareholders, together with the company’s withholding process, all move to the front of the compliance line at the same time.
Foreign-invested enterprises preparing to pay dividends should complete shareholder classification, a treaty-applicability check, documentation collection and a withholding calculation before payment. Foreign individual shareholders should confirm tax residence, beneficial-owner conditions and the required certificates early, rather than dealing with back taxes or treaty claims after payment has been made.
Zagdim can help companies and cross-border individual shareholders organise shareholding and dividend records, identify applicable treaties, build a withholding documentation checklist, and coordinate with professional advisers in China and in the shareholder’s home jurisdiction. Actual tax outcomes remain subject to the facts of each case, the requirements of the competent tax authority and formal professional advice.
This article is general policy information and does not constitute legal, tax or investment advice. Policies and enforcement practice may change; obtain case-specific professional advice before a transaction or dividend payment. Information current as of 3 September 2026.
Sources
Ministry of Finance and State Taxation Administration Announcement No. 27 of 2026; Cai Shui Zi (1994) No. 20; Individual Income Tax Law of the People’s Republic of China; Regulations for the Implementation of the Individual Income Tax Law; Administrative Measures for Non-Resident Taxpayers Claiming Treaty Benefits; Arrangement between the Mainland and the Hong Kong SAR for the Avoidance of Double Taxation; Xinhua report. Sources are the original Chinese-language official texts; descriptions above are translated for reference.
