China scrapped a 32-year-old tax break on Sept. 1 on dividends paid to foreign individuals. Experts quoted in Chinese media say most foreign investors won’t end up paying more. Whether it affects you or not depends entirely on where you’re a tax resident.
What Has Changed With China’s Dividend Tax?
So, in China, it has been the case that since 1994, foreigners who owned shares in a foreign-invested enterprise or joint venture paid no Chinese income tax on their dividends. Chinese individual shareholders in the same company, by contrast, would have paid 20%.
That ended on Sept. 1, 2026, under Announcement 27, issued by the Ministry of Finance and the State Taxation Administration.
The change was very simple. It basically said that dividends paid by a foreign-invested enterprise to any foreign individual are now taxed at 20%, the same as everybody else.
There were a few caveats to the announcement that are worth noting here.
- The first is that the company collects the tax. So it withholds 20% and pays it to the tax bureau by the 15th of the following month. If it doesn’t, the person who received the dividend must declare and pay the tax themselves by June 30 of the following year.
- Second, only individuals are affected. Dividends paid to a foreign company are still taxed at 10% or less, depending on the tax treaty China has with the country in which the company is based. That hasn’t changed.
- And finally, it wasn’t just foreigners who were affected. Residents of Hong Kong, Macao and Taiwan also lost their exemption.
Why Now?
So why now? Well, China has basically given two reasons.
The first is fairness. The argument is essentially this: why should Chinese and foreign shareholders in the same company pay different amounts of tax on the same dividend? Li Xuhong, vice president of the Beijing National Accounting Institute, told CCTV that this was “clearly not fair.”
The second, and potentially more consequential from Beijing’s point of view, is that, according to CCTV, some Chinese companies had been converting into foreign-invested enterprises and then paying out large dividends tax-free. Ge Yuyu of the Shanghai National Accounting Institute told Yicai that some individuals had even dodged the tax by changing nationality.
Although the announcement came as a shock to many in the business community, the change had been on the cards for a long time. The State Council first said it would scrap the exemption back in 2013, as part of a plan to reform income distribution.
Who the Dividend Tax Applies To
How much you’re likely to be affected by this depends on if you’re a foreign resident in China, or not.
If You’re a Non-China Resident
Most countries tax their residents on dividends they receive from abroad, but they also usually give them a credit for tax they’ve already paid overseas. China has tax treaties with more than 100 countries, and most of these limit how much China can tax a foreign individual’s dividends, often to 10%.
Put those two things together, and the money mostly just moves from one tax office to another.
Take the U.K. as an example. Say you live in the U.K., pay the basic rate of tax and own your Chinese business personally. You take a dividend of 100,000 Chinese yuan.
Before Sept. 1, China took nothing, while HMRC took 10.75%. That’s a total tax bill of 10,750 yuan.
Now, under the U.K.-China tax treaty, China can tax dividends paid to U.K.-resident individuals at 10%. If you claim that rate, China takes 10,000 yuan. HMRC still charges 10.75%, but gives you a credit for the 10% you’ve already paid in China. So you only owe another 0.75% in the UK.
The total is still 10,750 yuan. Nothing has changed.
If You Live Somewhere That Doesn’t Tax Dividends
Unfortunately, if you live somewhere like Hong Kong, Singapore or the UAE, where personal dividend income isn’t taxed, things have changed. China now takes 20%, and there’s no tax bill back home to offset it against. So whatever China takes from your dividend is gone. In effect, you’re paying the full 20% rate.
If You Live in China
Now, if you’re a foreigner who lives in China and owns a business there, you’re not going to be so lucky. The same tax treaty that protects our hypothetical U.K. resident won’t help you. Tax treaties generally protect residents of the other country, and if you’re resident in China, then you’re paying tax in China.
Most countries stop taxing you once you’ve moved abroad, so there’s no tax bill back home to offset the Chinese tax against. Before, you kept the whole dividend. Now, you only keep 80%.
The big exception is Americans. The U.S. taxes its citizens wherever they live, so U.S. citizens living in China may be able to offset the Chinese tax against their U.S. tax bill. But that’s really one for a U.S. tax adviser.
Here’s what that looks like for a small foreign-invested businesses making 1 million yuan in profit. Most small companies qualify as small low-profit enterprises, which pay an effective 5% corporate income tax on profits up to RMB 3 million.
| Before Sept. 1 | Now | |
|---|---|---|
| Profit | RMB 1,000,000 | RMB 1,000,000 |
| Corporate income tax (5%) | RMB 50,000 | RMB 50,000 |
| Left to pay out | RMB 950,000 | RMB 950,000 |
| Dividend tax (20%) | RMB 0 | RMB 190,000 |
| In your pocket | RMB 950,000 | RMB 760,000 |
| Total tax rate | 5% | 24% |
Why the Dividend Tax Does Not Apply to an EOR
It’s worth pointing out here that the new dividend tax doesn’t affect businesses using an employer of record, such as Kinyu’s China Desk. There’s no Chinese company and no Chinese profits to pay out as dividends. Your China team is simply a cost to your business, and your profits stay wherever your business is based.
If you’re weighing up whether you need a Chinese entity at all, China Desk lets you build a team in China without setting one up. For more on how the wider system works, read our guide to China’s taxation system. Or get in touch to talk through your setup.
