Tax Planning
Foreign-Owned Entities & Expat Shareholders: Key Chinese IIT and Entity Tax Updates in Late 2026
Two recent Chinese policy changes—tax on foreign individuals’ dividends and stock sales of restricted shares—alter tax obligations for expats and foreign-owned entities.
By NomadicTax Research Team • 5-8 min read • September 2, 2026
## New IIT Policy for Foreign Individuals’ Dividends (Effective Sept 1, 2026)
On **September 1, 2026**, *Announcement 2026 No. 27* from the Ministry of Finance and SAT officially introduces a **20% IIT rate** for foreign individuals (外籍个人) receiving **dividends (“股息红利”)** from foreign-invested companies, replacing older rules. Foreign investors are subject to withholding at source, and unmarried foreign individuals who received dividend income before withholding must file between **June 30 of the following year** and any deadline set by tax authority. ([guangdong.chinatax.gov.cn](https://guangdong.chinatax.gov.cn/gdsw/zjfg/2026-09/01/content_1b6d6fc7c34b4354a2cb917d550bf6a7.shtml?utm_source=openai))
### What foreign individuals and foreign-owned entities need to do:
- Ensure foreign-invested entities understand their withholding responsibilities when distributing dividends.
- Foreign individuals should maintain full record of dividends and their payer, especially if no withholding occurs.
- Be vigilant for notifications from tax authorities requiring follow-up payments.
## Revised Tax Treatment for Transfers of Restricted Shares in Listed Companies
*Announcement 2026 No. 26* (August 28, 2026) clarifies that gains from transferring **limited-sale (restricted) shares** are taxed as *“property transfer income”* (**财产转让所得**) at a flat rate of **20%**, replacing older classification. This applies once shareholders provide **cost basis documentation** during share registration. When cost basis is not filed, preliminary withholding follows stricter rules. ([fgk.chinatax.gov.cn](https://fgk.chinatax.gov.cn/zcfgk/c102416/c5252027/content.html?utm_source=openai))
### Important considerations:
- Restricted shareholders should submit certified cost details (成本原值) when registering restricted shares.
- If initial cost basis is not declared, the withholding agent (usually the securities registrar or brokerage) uses full amount of revenue for calculating withholding.
- For original shares of companies going public (e.g., via Beijing Stock Exchange), similar rules apply.
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## Strategic Planning Tips
| Strategy | Benefit | Caveat |
|---|---|---|
| Foreign individuals use double tax treaties to reduce withholding | Could lower effective tax on dividends | Must check treaty network of the country of investor and ensure proper documentation |
| Entities holding restricted shares ensure thorough record-keeping of acquisition cost and adjustments (赠与，送股，缩股) | Avoids punitive tax base when cost details missing | Cost adjustments must match legal forms approved by securities registry |
| Individuals planning share transfers should explore timing and cost basis declaration ahead of financial deadlines | Can reduce taxable income and facilitate refunds if over-withheld | If paperwork incomplete, refunds may be denied or delayed |
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## Who This Impacts the Most
- **Expats** who invest in Chinese companies or foreign-owned entities in China and receive dividends.
- **Foreign individuals** holding restricted or locked-up shares that are about to vest or become tradable.
- **Foreign-capital enterprises** and **securities brokers** processing share transfers and withholding taxes.
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## Case Example: Single Foreign Investor
Li, a French national, holds restricted shares of a Shenzhen-listed company. When the restriction period ends, she transfers the shares and sells them with a revenue of RMB 1,000,000. She submitted cost information when shares were registered, and her acquisition cost was RMB 400,000. The gain is RMB 600,000, taxed at 20% = **RMB 120,000**. If she hadn’t submitted cost basis, the withholding agent could treat full 1,000,000 as taxable revenue, costing her significantly more.
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## What Entities & Expats Should Do Now
1. **Audit existing holdings** of restricted shares and gather cost base records.
2. **Update share registration** processes to ensure cost documentation is submitted where required.
3. **Dividend policies** of foreign-invested companies should align withholding systems to the new 20% rate.
4. Expat tax advisors should model IIT liabilities under the old vs new policy to assess any refund potential.
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**Bottom line:** China has moved to stricter clarity and consistency around shares and dividend taxes for foreigners. Knowing your obligations now—and keeping clean documentation—can avoid unnecessary taxes and compliance issues.