China's Ministry of Finance and State Taxation Administration jointly released an announcement on September 1st, clarifying the individual income tax treatment for dividend and bonus income received by foreign individuals from foreign-invested enterprises.

Under the new rules, such dividend income will be categorized under "interest, dividends, and bonuses" and taxed at a flat rate of 20%. Foreign-invested enterprises are required to withhold and remit the tax when distributing dividends to foreign individuals, with the payment due by the 15th day of the month following the distribution.

If an enterprise fails to withhold the tax, the foreign individual receiving the dividend must settle the tax liability by June 30th of the year following the income year. In cases where tax authorities issue a notice requiring payment within a specified timeframe, the individual is obligated to comply accordingly. The new policy takes effect on September 1st, 2026.

This change marks a significant shift from the long-standing preferential treatment. Since 1994, foreign individuals had been exempt from individual income tax on dividends received from foreign-invested enterprises, a policy designed to promote reform and opening-up and attract foreign investment.

As China advances the construction of a unified national market, authorities are progressively streamlining and standardizing tax incentive policies. Industry experts suggest that eliminating this exemption helps uphold tax fairness and uniformity, supports the development of a unified domestic market, closes tax loopholes, and strengthens the redistributive role of taxation.