China has ended the specific individual income tax exemption previously available to foreign individuals receiving dividends or profit distributions from foreign-invested enterprises. Under Ministry of Finance and State Taxation Administration Announcement No. 27 of 2026, the income is subject to individual income tax under the “interest, dividends and bonuses” category at a statutory rate of 20% from September 1, 2026.
For a foreign-invested enterprise, or FIE, preparing a profit distribution, the practical change is not only the tax rate. The company must identify whether the recipient falls within the announcement, calculate the potential withholding, prepare the filing process and check any facts that are not addressed by the short announcement. Foreign individual shareholders should confirm the expected net cash amount and coordinate with the company before payment.
Policy update
- Effective from: September 1, 2026
- Statutory IIT rate: 20%
- Applies to covered dividends or profit distributions received by foreign individuals from foreign-invested enterprises
- The paying FIE generally handles withholding
Based on Ministry of Finance and State Taxation Administration Announcement No. 27 of 2026.
Key Change at a Glance
| Item | Announcement No. 27 rule |
|---|---|
| Effective date | September 1, 2026 |
| Affected income | Dividends or profit distributions received by foreign individuals from foreign-invested enterprises |
| Statutory IIT rate | 20% |
| Withholding party | The paying foreign-invested enterprise |
| Normal withholding filing deadline | By the 15th day of the month following payment of the income |
| If the tax was not withheld | The foreign individual generally pays by June 30 of the following year; if the tax authority issues a specific deadline, that deadline applies |
| Previous temporary exemption | Article 2(8) of Cai Shui Zi [1994] No. 20 is repealed |
This summary describes the domestic rule stated in Announcement No. 27. It does not decide every cross-border ownership, treaty or transition question.
What Changed?
For many years, Article 2(8) of the 1994 notice Cai Shui Zi [1994] No. 20 provided a temporary IIT exemption for dividends and profit distributions received by foreign individuals from foreign-invested enterprises. The State Taxation Administration also confirmed this historical treatment in official guidance published before the 2026 change.
Announcement No. 27 repeals that specific exemption and states that a foreign individual receiving dividends or profit distributions from an FIE must pay IIT under the “interest, dividends and bonuses” income category at a 20% rate. The announcement takes effect from September 1, 2026.
The careful description is that China has ended the specific IIT exemption previously available to foreign individuals receiving dividends from FIEs. It is not accurate to say that China created an entirely new dividend tax, because the 20% proportional rate already exists in China’s IIT framework; the 2026 announcement removes the identified exemption for the covered income.
Who May Be Affected?
The announcement specifically addresses a foreign individual who receives dividends or profit distributions from a foreign-invested enterprise. A straightforward example is a foreign individual who directly holds equity in a China FIE and receives a distribution from that enterprise.
The recipient distinction matters. The announcement is written for foreign individuals and should not be treated as a complete tax rule for a foreign corporate shareholder. Corporate recipients, indirect ownership chains and offshore holding structures may involve different rules and facts. The announcement also does not say that every cross-border dividend in every structure is automatically taxed at 20%.
Tax residency, beneficial ownership, the legal recipient, the paying entity and the character of the payment may all be relevant in a more complex case. Announcement No. 27 does not provide a general analysis of those issues, so businesses should review the actual distribution arrangement rather than applying the headline to a different shareholder type.
Who Withholds the Tax?
When an FIE pays the covered dividend or profit distribution to a foreign individual, Announcement No. 27 states that the enterprise must withhold and pay the tax. The enterprise must file and pay the withholding tax by the 15th day of the month following payment of the income.
For finance and accounting teams, this means the recipient classification, gross distribution, statutory withholding calculation and expected net payment should be checked before funds are released. The company should align the shareholder resolution, accounting entry, tax calculation and payment workflow so the tax filing is not treated as an afterthought.
Businesses using external finance support should share the planned payment date and confirmed recipient information early enough for the withholding filing timetable to be prepared. Hongda’s China accounting and bookkeeping service can support the accounting and filing workflow based on the agreed scope and confirmed facts.
What If the Company Does Not Withhold?
Failure by the enterprise to withhold does not remove the tax obligation. Announcement No. 27 states that, if the FIE does not withhold the tax, the foreign individual receiving the income should generally pay the tax by June 30 of the following year.
There is an important exception to that timing statement: if the tax authority notifies the foreign individual of a specific deadline for payment, the individual must pay by the deadline stated in that notice.
This rule should not be read as giving the company a choice to skip withholding. The announcement places the withholding obligation on the paying FIE. The June 30 rule addresses the foreign individual’s payment responsibility when the enterprise has failed to withhold.
Simple Illustration Based on the Statutory Rate
Assume a foreign individual receives a qualifying dividend of RMB 1,000,000 from an FIE and the domestic statutory rate in Announcement No. 27 applies without any separate adjustment:
RMB 1,000,000 × 20% = RMB 200,000 indicative IIT
This is a simple arithmetic illustration based on the statutory rate. It is not a determination of every taxpayer’s final liability. The result for a particular distribution depends on the confirmed recipient, payment and other relevant facts.
What About Dividends Around September 1, 2026?
Announcement No. 27 states that it takes effect on September 1, 2026. The announcement itself does not provide detailed transitional examples for dividends declared, accrued or paid around that date. It does not expressly explain every possible combination of a pre-effective-date resolution and a later payment.
Companies dealing with dividends declared, accrued or paid around the effective date should review the specific facts before filing or payment. The corporate resolution, accounting treatment, payment timing and the tax authority’s interpretation may need to be considered together. Businesses should not assume a particular result solely from the declaration date or solely from the payment date unless applicable official guidance supports that conclusion.
What About Tax Treaties?
Announcement No. 27 sets out the domestic 20% rule and does not provide a general treaty-relief procedure in the announcement. It does not state that a treaty automatically reduces the rate, that relief always applies or that every foreign individual can claim a particular outcome.
If a tax treaty may be relevant, the applicable agreement and the taxpayer’s specific facts should be reviewed separately. That review may need to consider the identity and residence of the recipient, the type of income, ownership facts, procedural requirements and supporting evidence. A potential treaty question should be identified before payment, but no treaty reduction should be assumed without a separate, fact-specific analysis.
What Should Foreign-Invested Companies Do Now?
- Confirm the recipient. Determine whether the planned recipient is a foreign individual and whether the paying entity is an FIE within the scenario addressed by the announcement.
- Review planned distributions before payment. Bring the finance, accounting and tax teams into the process before funds are released.
- Calculate the potential withholding impact. Model the gross dividend, domestic 20% withholding amount and expected net cash payment using confirmed facts.
- Prepare the filing workflow. Build the following-month 15th-day deadline into the payment calendar and assign responsibility for preparation, review and submission.
- Retain normal supporting records. Keep the dividend resolution, shareholder and recipient information, accounting records, payment evidence and tax filing materials used for the transaction.
- Identify cases needing additional analysis. Escalate transition-date, treaty, indirect ownership, offshore structure or unusual recipient questions before payment.
Companies that are still forming or operating a WFOE in China should also ensure that future shareholder-distribution procedures are reflected in their finance and governance planning.
What Should Foreign Shareholders Do?
- Do not assume that the historical temporary exemption still applies to a distribution covered by the new announcement.
- Confirm the gross dividend, estimated domestic withholding and expected net cash amount before the company pays.
- Coordinate with the China company’s finance or tax team so the recipient details and payment date are available for the filing.
- Review complicated cross-border facts separately, especially where a treaty, indirect ownership chain, offshore holding company or transition-date issue may be relevant.
A foreign shareholder should not rely on a general online summary as a substitute for reviewing the actual recipient and transaction facts.
How Hongda Can Help
Hongda can assist with the practical China tax and accounting process for a planned dividend distribution, based on the agreed engagement scope and confirmed information. Support may include:
- reviewing the planned distribution from a China accounting and tax-process perspective;
- calculating the domestic withholding amount based on confirmed facts;
- supporting withholding and filing preparation;
- coordinating accounting entries and supporting documentation; and
- identifying questions that require additional specialist tax analysis.
Hongda does not guarantee a treaty reduction, filing acceptance or a particular tax outcome. Where the announcement does not resolve a material fact pattern, the case should be reviewed before payment.
Planning a dividend distribution from your China company?
Talk to Hongda about the tax and filing steps before the payment is made.
