China Ends Tax-Free Dividends for Foreign Individuals

China has terminated a long-standing personal income tax exemption that allowed foreign individuals to receive tax-free dividends from foreign-invested enterprises (FIEs). As of 1 September 2026, dividends paid by FIEs to foreign individual shareholders are subject to a 20% individual income tax.

The measure was announced jointly by the Ministry of Finance and the State Taxation Administration. It brings dividend income received by foreign individuals into line with the general tax treatment applicable under China’s Individual Income Tax Law.

The new policy formally abolishes the exemption established in 1994 under Circular Caishuizi [1994] No. 20, Article 2, Item 8. The original exemption was introduced during the early stages of China’s reform and opening-up process, with the aim of attracting foreign investment.

The reform forms part of China’s broader effort to modernise and standardise its tax system. According to Chinese officials and experts, the main objectives are to eliminate legacy preferential tax treatments, promote equal tax treatment for foreign and domestic individual shareholders; and support the development of a unified national market and a fairer competitive environment.

The new rules represent a significant change for foreign individual investors holding shares in Chinese foreign-invested enterprises and may increase the tax cost of future dividend distributions or promote a reorganisation for foreign individual shareholders corporate structures via more favourable tax treaties for companies.