Starting September 1, 2026, foreign individuals receiving dividends from Chinese foreign-invested enterprises face a 20% tax rate, ending the 30-year exemption. The shift promotes tax fairness, though foreign tax credits may offset the burden for many.
Tags:China Officially Ends 30-Year Dividend Tax Exemption for Foreign Individuals – 20% Rate Applies Starting September 1
Starting September 1, 2026, foreign individuals receiving dividends from foreign-invested enterprises in China will no longer enjoy a tax exemption. Instead, the dividends will be taxed at a flat rate of 20%, according to a joint announcement by the Ministry of Finance and the State Taxation Administration.
What changed?
Under China's Individual Income Tax Law, dividend income has always been subject to a 20% tax rate. However, since 1994, foreign individuals receiving dividends from foreign-invested enterprises had been granted a temporary exemption — a policy introduced to attract foreign investment during the early stages of China's reform and opening-up.
That exemption has now been officially lifted.
Why now?
The policy had been in place for over 30 years. According to Liu Yi, director of Peking University's China Fiscal and Tax Research Center, while it played a positive role in attracting foreign capital during a specific phase, the context has changed significantly.
Today, foreign investors are increasingly drawn to China by its rule of law, market size, and industrial infrastructure — not just tax incentives. Continuing a tax policy that treats domestic and foreign investors unequally no longer fits the country's current development stage.
Li Xuhong, vice president of Beijing National Accounting Institute, added that when economies reach a certain level of development, they typically shift away from relying on tax preferences to attract foreign capital, and instead focus on stable, fair, and well-regulated market environments. This policy adjustment, she said, helps maintain tax fairness, creates a healthier investment climate, and closes loopholes that had been exploited under the old system.
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Will foreign investors pay more tax?
Not necessarily, according to Liu Yi.
Most developed countries tax their residents on worldwide income. Under the previous exemption, a foreign individual who received tax-free dividends in China would often still have to pay taxes on that income in their home country — meaning the tax burden didn't actually disappear.
Now that the dividend income is taxed in China at 20%, foreign individuals may be eligible for a foreign tax credit in their home country. In many cases, the overall tax burden may not increase — it's simply a shift in where the tax is paid.
Source: 新华网
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