China: Tax Exemption for Dividend Received by Foreign Individuals Abolished

On 1 September 2026, the Chinese Ministry of Finance and the State Taxation Administration jointly issued a notice providing that, with immediate effect, dividends received by foreign individuals from foreign-invested enterprises in China are no longer tax-exempt. Such dividends are now subject to the Chinese Individual Income Tax (“IIT”) at a rate of 20 percent.

As a result, the IIT treatment of dividend income for foreign and Chinese individuals has now been aligned.

In fact, the abolition of this tax exemption did not come as a surprise. As early as in 2013, the Chinese State Council, in the Notice on Deepening the Reform of the Income Distribution System (Guo Fa [2013] No. 6), explicitly called for “the abolition of tax incentives such as the exemption from individual income tax on dividends received by foreign individuals from foreign-invested enterprises”. Thirteen years later, this regulation adjustment has finally taken effect to further realize fairness in IIT burdens.

Under the new rules, there are three scenarios for the declaration and payment of IIT on dividends and profit distributions received by foreign individuals:

• When a foreign-invested enterprise pays dividends or profit distributions to a foreign individual, it must withhold and remit the applicable IIT and file the relevant tax return by the 15th day of the following month.
• If the foreign-invested enterprise fails to withhold the tax, the foreign individual receiving the dividends or profit distributions must pay the IIT by 30 June of the following year after the income is received. In this case, the foreign-invested enterprise may also be subject to administrative penalties for failing to fulfill its withholding obligations.
• If the tax authorities issue a notice requiring payment within a specified period, the foreign individual must pay the IIT within the prescribed deadline. In other words, in such circumstances, the foreign individual may not be permitted to wait until the annual IIT filing period in the following year and instead may be required to pay the IIT within the deadline specified in the notice.

It is worth noting that, under tax treaties signed between China and relevant countries, for example, under the Sino-German Tax Treaty, if the beneficial owner of dividends is an individual resident of the other contracting state, the tax levied by China shall not exceed 10% of the total dividend amount. Provided that the individual meets the criteria for a beneficial owner, the dividend income received by such resident individual from a foreign-invested enterprise in China is eligible for the corresponding tax treaty benefits and the preferential tax rate stipulated in the treaty. We will continue to monitor the relevant practical implementation.

For individuals who are subject to unlimited tax liability in Germany, prior to this regulation change, dividends and profit distributions received from China could potentially have been fully subject to German taxation, as China, as the source country, did not levy tax on such income. Going forward, China will resume exercising its taxing rights over this income, while German tax residents may still apply for the treaty rate under the Sino-German Tax Treaty. At the same time, we recommend that individuals who are subject to unlimited tax liability in Germany continue to report their China-source dividend and profit distribution income to the German tax authorities when filing their German income tax return, and provide evidence of the IIT paid in China, in order to mitigate the risk of double taxation.