Compliance
What Foreign Individuals Must Know: New IIT Rules for Dividend & Share Transfers
Recent updates impacting foreign individuals receiving dividends from Chinese-invested businesses or transferring restricted shares—big changes in tax treatment and compliance.
By NomadicTax Research Team • 5-8 min read • September 16, 2026
## Overview
In August–September 2026, China introduced two significant personal income tax (IIT) policy changes affecting **foreign individuals (non-Chinese nationals)** who receive dividends (“股息红利”) from Chinese-invested enterprises or transfer **restricted shares** in listed Chinese companies. These changes tighten tax withholding and clarify how gains are taxed. Understanding these becomes critical for anyone exposed to Chinese equity and dividend income.
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## Key Changes
### 1. **Dividends/Reductions Paid to Foreign Individuals**
- As of **September 1, 2026**, foreign individuals receiving dividends or equity redemptions from foreign-invested enterprises will be taxed under the “interest, dividend, and bonus income” category at a **flat rate of 20%**. ([fgk.chinatax.gov.cn](https://fgk.chinatax.gov.cn/zcfgk/c102416/c5252107/content.html?utm_source=openai))
- The payer enterprise must **withhold and remit** tax within **15 days after paying** the dividend. If it fails to withhold, the recipient must pay by **June 30 of the following calendar year**, upon notification. ([fgk.chinatax.gov.cn](https://fgk.chinatax.gov.cn/zcfgk/c102416/c5252107/content.html?utm_source=openai))
- The policy replaces section (8) of Article 2 of the old 1994 announcement (财税〔1994〕20号). ([fgk.chinatax.gov.cn](https://fgk.chinatax.gov.cn/zcfgk/c102416/c5252107/content.html?utm_source=openai))
### 2. **Transfer of Restricted Shares (“限售股”) by Individuals**
- In the newly issued **公告 2026年第26号** (August 28, 2026), transfers of restricted shares (“限售股”) by individuals are taxed under **“capital gains from property transfer”** at **20% IIT rate**. ([shanghai.chinatax.gov.cn](https://shanghai.chinatax.gov.cn/gate/big5/shanghai.chinatax.gov.cn/zcfw/zcfgk/grsds/202608/t481413.html?utm_source=openai))
- The “restricted shares” include those defined in 财税〔2009〕167号, and also shares arising after lifting restrictions (**解禁日**) or by stock transfers/splits once registered post-policy. ([shanghai.chinatax.gov.cn](https://shanghai.chinatax.gov.cn/gate/big5/shanghai.chinatax.gov.cn/zcfw/zcfgk/grsds/202608/t481413.html?utm_source=openai))
- Sellers must adjust cost basis when shares undergo splits, transfers, or spin-offs. If cost basis is not properly provided during initial registration, the securities institutions will pre-withhold tax based on full transfer proceeds. ([shanghai.chinatax.gov.cn](https://shanghai.chinatax.gov.cn/gate/big5/shanghai.chinatax.gov.cn/zcfw/zcfgk/grsds/202608/t481413.html?utm_source=openai))
- After withholding, the taxpayer can file a **clearance declaration** (“清算申报”) before **June 30 of the following year** for refunds or additional payments depending on actual cost basis. ([shanghai.chinatax.gov.cn](https://shanghai.chinatax.gov.cn/gate/big5/shanghai.chinatax.gov.cn/zcfw/zcfgk/grsds/202608/t481413.html?utm_source=openai))
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## Why These Changes Matter
- **Clarity & Certainty**: The new policies codify what was previously ambiguous, reducing risk of surprise liabilities especially around restricted share transfers and dividend withholding.
- **Higher Tax Burden**: 20% is higher than some previously applied rates under tax treaties or favorable policies, especially if cost basis isn’t properly verified. Foreign individuals must ensure documentation for cost basis is established early.
- **Reporting Obligations**: Proper registration of restricted shares, ensuring securities institutions and listed companies obtain verifiable cost basis data, and tracking all registrations/splits/sends becomes essential.
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## Practical Steps for Foreign Individuals & Advisors
- Confirm your **tax status**: Are you treated under IIT for nonresidents or resident individuals? Residency rules (e.g., the 183-day rule) still apply.
- For dividends/redemptions:
- Ensure the paying enterprise understands its withholding obligation and rate.
- Keep records (dividend statements, W-8/W-J equivalent) to support any claims or treaty benefits.
- For restricted shares transfers:
- At **initial registration** of restricted shares with securities depository, provide detailed cost basis certified by an accounting or tax professional.
- If cost is not provided, prepare for higher withholding at 20% of proceeds.
- After the transaction, be ready with audited records for “清算申报” before **June 30 next year**.
- Consider treaty implications: Some countries have tax treaties with China that may reduce withholding/tax rates. Review the current China's treaty with your country carefully.
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## Example Scenario
> Sarah, a non-Chinese national, acquired restricted shares in a Shanghai-listed company via allocation. She ensures that, at initial registration, she submits cost basis documents certified by an accounting firm. Upon lifting restrictions (解禁), she sells the shares for ¥500,000. The securities institution will withhold 20% IIT on capital gain (sales proceeds minus cost). She then submits audited records by June 30 of next year and obtains refund if withheld was excessive.
If she had not provided cost basis at registration, withholding would occur on **full ¥500,000**, potentially leading to over-withholding.
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China’s IIT changes in late 2026 reflect a global trend toward increased transparency and consistent tax treatment for foreign investors. For foreign individuals, proactive documentation and timely filings are now more important than ever.