Author:
Francesco Marano, Italian CPA, Auditor
Dottore Commercialista – CPA
CPO & Partners (Shanghai) Co. Ltd.
赛珀欧（上海）企业管理咨询有限公司
E: [email protected]
W: www.cpopartners.com
Edited by:
Integra International
Grant Gilmour, B.Sc., MBA, CA, CPA Canada, BC, CPA USA, Az, GDipICL.Sc.
INTEGRA TAX WORLD NEWSLETTER EDITOR
E: [email protected]
China – Abolition of the Individual Income-Tax (IIT) exemption for dividends paid to foreign natural-person individuals.
MOF-STA Joint Announcement No. 27/2026
Executive Summary
Effective 1 September 2026, the Ministry of Finance (MOF) and the State Taxation Administration (STA) of the People’s Republic of China have terminated, with immediate effect and without any transition period, the Individual Income-Tax (IIT) temporary exemption on dividends and bonuses distributed by Foreign-Invested Enterprises (FIEs) to foreign natural-person shareholders. Such income is now subject to 20 % IIT, aligning the tax treatment of foreign-individual shareholders with that of Chinese-individual shareholders.
This measure, laid down in the joint MOF-STA Announcement No. 27/2026, explicitly repeals the provision granting the exemption dating back to 1994 (CaiShuiZi [1994] No. 20, Article 2, paragraph 8). It forms part of the broader policy program for the “unification of the tax system” and for building the “unified national market”, (统⼀⼤市场).
Legal framework and repeal of the temporary Individual Income Tax exemption policy
Announcement No. 27 of 2026 stipulates that, starting from September 1, 2026, dividends and bonus income obtained by foreign natural person individuals from FIEs shall be subject to individual income tax under the category of “interest, dividends, and bonus income”, at a flat rate of 20%. At the same time, Article 2, Item (8) of Caishuizi [1994] No. 20 was repealed. That provision granted non-resident natural person foreign individuals a temporary exemption from individual income tax on dividends and bonus income obtained from foreign-invested enterprises — a tax-exempt treatment for dividends sourced from foreign-invested enterprises that had been in effect for 32 years.
The statutory basis for taxation remains the Individual Income Tax Law of the People’s Republic of China, which classifies dividends as capital income and sets a flat tax rate of 20% on such income.
Scope of application: persons and transactions
Overseas individual shareholders (new policy)
The new rule applies to all foreign individual shareholders receiving dividends or bonuses from FIEs, regardless of the legal form of the enterprise (e.g. wholly-foreign-owned enterprise – WFOE, equity joint venture). There is no grandfathering clause for profit-distribution resolutions adopted before 1 September 2026; the relevant date is the actual date of payment.
Overseas enterprise shareholders (unchanged policy)
Announcement No. 27/2026 does not alter the tax policy applicable to non-resident enterprise shareholders. Dividends paid to foreign companies continue to be subject to 10 % withholding tax, unless a different rate applies under a double-tax-avoidance treaty.
Expatriate fringe benefits (temporary confirmation)
According to the “Announcement of the Ministry of Finance and the State Taxation Administration on the Continued Implementation of Individual Income Tax Policies Concerning Allowances and Subsidies for Foreign Individuals” (Ministry of Finance and State Taxation Administration Announcement No. 29 of 2023), the main fringe benefits for foreign personnel (such as housing subsidies, children’s education expenses, language training fees, etc.) remain unchanged under the current non-resident individual income tax rules, and will remain in effect until December 31, 2027.
Withholding obligations, compliance formalities and penalties
FIEs paying dividends to foreign natural-person individuals must perform source-withholding of the tax and file the corresponding tax return by the 15th day of the month following payment.
If the enterprise fails to withhold tax or withholds an insufficient amount, the foreign beneficial owner must self-assess and pay the tax by 30 June of the year after the income is received, unless local-tax-authority rules set a shorter deadline. Failure to withhold exposes the FIE to tax audits, late payment penalties and administrative penalties under STA practice.
Policy rationale and background
Chinese authorities present this reform as a tax-fairness measure: within one and the same company it was no longer justifiable for Chinese-individual shareholders to pay 20 % tax on dividends while foreign-individual shareholders benefited from a full exemption.
A further driver is closing a well-established tax-avoidance practice: over time some Chinese entrepreneurs converted domestic companies into FIEs – in some cases by
changing personal citizenship – so as to receive tax-exempt profit distributions. The reform fits within the broader “unified national market” initiative, which aims to remove local or sector-specific preferential treatments that distort domestic competition.
Operational consequences and tax-planning considerations
- Dividend-payment timing: All dividend distributions to foreign natural-person individuals resolved or paid after 1 September 2026 are governed by the new rules. For ongoing or planned distributions, companies should review payment timelines and shareholder-meeting resolutions.
- Double-tax-avoidance treaties: Treaty relief for dividends received by natural-person individuals is not always identical to relief for corporate recipients. The potential mitigation of the statutory 20 % rate must be assessed case-by-case, based on the applicable tax treaty and the income’s legal
- Corporate compliance: FIEs must update dividend-payment procedures, withholding-tax calculations, tax-reporting workflows (deadline: 15 days after the payment month), and supporting documentation (shareholder resolutions, payment slips, tax-residency certificates).
- Shareholder communications: Foreign natural-person shareholders should be promptly informed about the new policy, its net impact on distributions and any compliance duties falling on When planning future dividend distributions under the new regulation, all relevant factors should be taken into account for tax-planning purposes.
Main legal references
- Ministry of Finance and State Taxation Administration Joint Announcement No. 27 of 2026 (effective from September 1, 2026; repeals Article 2, Item (8) of Caishuizi [1994] No. 20).
- Individual Income Tax Law of the People’s Republic of China (Article 3, tax rates for individual income tax, paragraph 3 — the “interest, dividends, and bonus income” category, 20% tax rate).
- Implementation Regulations of the Enterprise Income Tax Law of the People’s Republic of China, Article 91 — where a non-resident enterprise obtains income as specified in Article 27, Item (5) of the Enterprise Income Tax Law, enterprise income tax shall be levied at a reduced rate of 10%. The 10% withholding income tax system for non-resident enterprises (subject to separate provisions; double taxation avoidance agreements may apply).
- According to the “Announcement of the Ministry of Finance and the State Taxation Administration on the Continued Implementation of Individual Income Tax Policies Concerning Allowances and Subsidies for Foreign Individuals” (Ministry of Finance and State Taxation Administration Announcement No. 29 of 2023), the tax-exempt allowances and benefits for foreign personnel are confirmed to be extended until 2027 (under the relevant non-resident individual income tax provisions).
Recommended next steps
- Map FIEs that have foreign-natural-person shareholders, plus dividend distributions planned over the next 6-12 months.
- For each shareholder, review the applicable double-tax-avoidance treaty and any possible reduction of the tax rate.
- Update internal tax-compliance policies and shareholder
- Evaluate permitted tax-planning measures (e.g. dividend-payment timing, utilization of one-lump sum bonus with preferential IIT rate, etc.) in compliance with the new rules. However, the specific measure should be tailored according to each case, as tax compliance must be guaranteed and some potential solutions might not be suitable based on the specific circumstance.
Disclaimer
This communication contains general information only based on collective research. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No representations, warranties or undertakings (express or implied) are given as to the accuracy or completeness of the information in this communication, and none of CPO & PARTNERS (Shanghai) Co. Ltd., Integra International, related entities, employees or agents shall be liable or responsible for any loss or damage whatsoever arising directly or indirectly in connection with any person relying on this communication.
CPO & PARTNERS (Shanghai) Co. Ltd. and Integra International, and their related entities, are legally separate and independent entities.
© 2026 Integra and CPO & PARTNERS (Shanghai) Co. Ltd.
About the Author:
Francesco Marano, Italian CPA,
Auditor
- Bachelor’s degree in business economics Università Parthenope di Napoli (2006)
- Since 2008 engaged in tax, administrative and labour consulting
- Certified mediator in Civil Disputes (2011)
- Master’s degree in Management, Università Parthenope di Napoli (2012)
- International MBA, China Far East & Europe Business Relations, Bologna Business School, 10% top class graduate
- Italian Certified Public Accountant (Dottore Commercialista), registered in Avellino district number N.1101 (2015);
- Certified Auditor (Revisore Legale) – G.U. 4° series special N.70 of 11/09/2015;
- Since 2015 living in China, worked for multinational companies, in management and administrative-financial departments
- Temporary manager in start-up phase, restructuring and during delicate periods of company’s life. Main sectors: mechanical industry, automotive
- EIC Certificate obtained in International Chamber of Commerce Academy (2021)
- Appointed arbitrator/mediator in International Arbitration Chamber SHIAC (Shanghai), from Aug 1st, 2021 to April 30th, 2031 (2nd term)
- Managing Partner of CPO & Partners Shanghai (19 CPAs and Lawyers in Shanghai Office), coordinating the Cross Border projects in Asia & Far East with HK, Taiwan Offices and South East Asia Partners
- Languages: English, Chinese, Italian, Spanish
About the Member Firm:
CPO & PARTNERS is a professional advisory firm established in 2007 by Italian Chartered Accountants. We specialize in tax and legal advisory services for European companies operating in China and Southeast Asia, as well as for Chinese companies entering the European market. Our international team of Lawyers and CPAs supports clients from the very beginning: company incorporation, market research, location selection, recruitment, accounting, tax planning, contracts, and IPR protection. With nearly twenty years of experience in Asia, we provide practical support and strategic expertise to address every aspect of corporate operations and regulatory compliance.
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