Distribute, reinvest or restructure? Foreign owners of Chinese companies after the end of the dividend exemption and before the June 2027 capital deadline

Two constraints bear on the 2026 year-end. Since 1 September, dividends that a foreign-invested enterprise pays to a foreign individual shareholder, previously exempt, bear 20% withholding tax, or 10% for a resident of Hong Kong, the Netherlands, Switzerland, Malaysia or Singapore who claims the treaty rate. By 30 June 2027, the limited liability companies concerned must adjust their capital contribution schedules.

Status as of 25 October 2026 — MOF/STA Announcement 2026 No. 27 has been in force since 1 September 2026. At the time of writing, we have found no implementing notice, Q&A or clarification from the State Taxation Administration (STA), in particular on residents of Hong Kong, Macao and Taiwan. A draft regulation of the State Administration for Market Regulation (SAMR) on the public disclosure of registered capital is open for consultation until 15 November 2026.

What changed on 1 September 2026

Announcement 2026 No. 27 of the Ministry of Finance (MOF) and the STA runs to three articles [1]. Dividends that a foreign individual receives from a foreign-invested enterprise (FIE) now fall under the category "interest, dividends and bonuses", taxed at 20%. The company withholds the tax on payment and files the return within the first 15 days of the following month, subject to extensions in the tax filing calendar [9]. If no tax is withheld, the shareholder pays by 30 June of the following year, or earlier if the tax authority so requires. The 1994 exemption (Circular Caishuizi [1994] No. 20, Article 2(8)) is repealed, with no transitional provision.

In practice, the payment date appears decisive: according to China Briefing, a dividend resolved before 1 September but paid afterwards falls under the new regime [27]. The authorities have not confirmed this reading, and the text says nothing about profits earned before that date [1]. As a precaution, any payment made after 31 August 2026 should be treated as taxable, whatever the financial year of the profits.

The penalty risk sits with the company. If it fails to withhold, the tax is recovered from the shareholder and the company faces a fine of 50% to 300% of the tax not withheld; if it remits late, a surcharge of 0.05% per day applies [8]. A national benchmark for tax penalties takes effect on 1 November 2026 [10].

An academic quoted in a Xinhua report republished by the STA considers that the Chinese tax can be credited in the state of residence [2]. That assumes the state of residence taxes the dividend, and relief there is in principle capped at the treaty rate. Hence the working rule: 20%, unless a treaty rate is claimed and defended.

Decision 1 — distribute, retain or reinvest: claim the treaty rate on every payment

The treaty rate presupposes tax residence in the other state under the treaty. A foreign shareholder who spends 183 days or more in mainland China in a year is in principle tax resident there [25] and, unless the treaty tie-breaker provides otherwise, cannot claim it.

Nor is the rate automatic. Under STA Announcement [2019] No. 35, the non-resident self-assesses entitlement, gives the company an information form before payment and keeps the supporting documents: a tax residence certificate covering the year of the income or the preceding year, the distribution and payment documents, and evidence of beneficial-owner status [3], which an individual resident in the treaty state is in principle granted outright [4]. Without a complete form, the company applies 20%; an eligible shareholder can then claim a refund of the excess within three years, with interest [3][8].

Review takes place after the event and is risk-based (large amounts, low-tax jurisdictions, compliance record) [28]. A rejected claim is reversed retroactively, with late-payment interest and, where applicable, penalties; failure to produce the requested documents within the time allowed can alone warrant rejection [3][28].

The rates shown are the withholding ceilings set by each instrument [11] to [15], [23].

On a dividend of RMB 1,000,000, the gap between 20% and 10% is RMB 100,000. For a resident of Hong Kong, Malaysia or Singapore, that is a final cost unless a refund is obtained in China. For a Swiss or Dutch resident, relief at home is in principle limited to the tax due under the treaty [12][13]: the excess can be recovered only in China.

Before distributing, the company must also make good prior losses, fund the statutory reserve (10% of profit up to 50% of registered capital) [16] and, for any payment above USD 50,000, complete the tax filing required before an outbound remittance [7]. Retaining profits for reinvestment defers the tax without extinguishing it: withholding will apply when the dividend is paid.

Decision 2 — interposing a holding company: a substance and beneficial-ownership test, not a choice of rate

According to China Briefing [29], on 23 December 2025 the Supreme People's Court dismissed the retrial application of a Hong Kong company that had been denied the 5% rate (case (2025) 最高法行申4506号 [30]). The ownership chain led back to four Hong Kong residents through an intermediate holding company in a third jurisdiction. The Court pointed to mismatched distribution resolutions and fund flows, a holding company with very few staff and very low costs, and no Hong Kong tax paid on the dividends; the company's plea of good faith did not suffice. Every payment must therefore be traceable to its beneficiary.

The safe harbour in STA Announcement [2018] No. 9 covers, among others, an entity wholly owned by individuals resident in the same treaty state, provided any intermediate layers are resident in China or in that state [4]. A chain running through a third jurisdiction falls to the full multi-factor analysis, as in the 2025 case. The 5% rate also requires a company holding at least 25% of the capital directly and continuously throughout the 12 months before the dividend (Circular Guoshuihan [2009] No. 81, Art. 3) [5]: a newly interposed holding company does not qualify during that period.

Even if recognised as the beneficial owner, the holding company can be refused the benefit under the principal purpose test (PPT), which China applies [28]: the benefit is denied if obtaining it was one of the principal purposes of the transaction. The test appears in Article 24A of the Mainland–Hong Kong Arrangement [11] and applies to the Malaysian treaty through the Multilateral Instrument [14].

Then there is the cost. For the individual, contributing shares to a holding company is in principle a disposal taxed at 20% on the gain [24], subject to the applicable treaty; an abnormally low price can be reassessed, first by the net asset method [6]. The holding company's own tax position, including onward distribution, must also be modelled. In Hong Kong, the exemption for foreign-sourced dividends (the FSIE regime) requires either economic substance or a holding of at least 5% for 12 months; the second route is subject to a 15% subject-to-tax test, an anti-hybrid rule and a main purpose rule [20].

A holding company has its place where it performs a genuine regional role (management, financing, several subsidiaries) and the decision is documented with your advisers. The rate differential alone is not enough.

Decision 3 — subscribed capital: amend the articles of association by 30 June 2027

Since 1 July 2024, the capital of a Chinese limited liability company (LLC) must be paid in within five years of incorporation (Article 47 of the Company Law) [16]. For companies registered on or before 30 June 2024, State Council Decree No. 784 and SAMR Order No. 95 set out the transition [17][18]:

• LLCs (the form of most WFOEs, or wholly foreign-owned enterprises, and of joint ventures; check the register): if the contribution period remaining at 1 July 2027 exceeds five years, it must be cut to five years and written into the articles by 30 June 2027, which means payment by 30 June 2032 at the latest.
• Joint-stock companies: full payment by 30 June 2027.

For an LLC, the 2027 obligation is therefore an amendment to the articles and requires no payment on that date. The registration authority also reviews capital that appears abnormal (a contribution period of 30 years or more, or capital of RMB 1 billion or more) and may require an adjustment [18]. If a company fails to adjust its schedule despite an order, the authority enters a special notation on the National Enterprise Credit Information Publicity System, accessible to banks and counterparties [17]. The SAMR draft regulation restates the deadline and, subject to adoption, provides for penalties and credit measures for failure to adjust or to disclose [33][34].

Subscribed capital is a real commitment: if the company cannot pay its debts as they fall due, the company itself or its creditors can demand early payment (Article 54) [16]. Oversized capital remains a contingent liability of the shareholder. There are three routes:

1. Amend the schedule and pay in by 30 June 2032 at the latest, planning the contributions and related foreign exchange transactions.
2. Pay in earlier, if the shareholder's cash position allows.
3. Reduce the capital (Article 224): shareholders' resolution, balance sheet and asset inventory, notice to creditors within 10 days and public announcement within 30 days; creditors then have 30 days from the notice or, failing notice, 45 days from the announcement to demand payment or security [16]. Gaojin Law gives an indicative two to three months for a straightforward reduction [32]. The foreign exchange registration is then amended with the bank; in principle, only a reduction of paid-in capital can be repatriated [19].

A reduction to offset losses (Article 225), by contrast, does not release shareholders from their contribution obligation and blocks distributions until reserves reach 50% of registered capital [16].

Open points and timetable

• Residents of Hong Kong, Macao and Taiwan: the Announcement covers individuals of foreign nationality and is silent on them. Acclime regards the point as unresolved [31]; China Briefing considers that the relief they enjoyed by analogy with foreign nationals has also ended [27]. Hong Kong residents can in any case claim 10% under the Arrangement [11].
• Treaty procedure: we have found no procedure specific to individuals; the general procedure under Announcement [2019] No. 35 applies [3].

What to do now

1. Immediately: check that tax on every dividend paid since 1 September has been withheld and reported on time (September payments: 26 October; October payments: 16 November; November payments: 15 December) [9]. Remit any late withholding (surcharge of 0.05% per day) [8], regularise any missed withholding with your advisers and, where 20% was withheld in error, prepare the refund claim.
2. Before the next payment: give the company, for each individual shareholder, the tax residence certificate (year of payment or preceding year), the information form and the beneficial-ownership file.
3. Before deciding on distributions of 2026 profits: rerun the after-tax model (withholding, treatment in the state of residence, statutory reserve).
4. Before any reorganisation of the shareholding: assess the substance, beneficial-ownership and principal purpose tests with your advisers, quantify the tax on the gain from contributing the shares and document the decision.
5. By end-January 2027: review the articles of association and the register extract (contribution deadline, amount of capital) and choose between amendment, early payment and reduction.
6. By March 2027 at the latest: launch any capital reduction, so that the creditor, registry and bank steps are complete by 30 June 2027.
7. By May 2027 at the latest: have the amendment to the contribution schedule adopted and filed; for a joint-stock company, complete full payment before 30 June 2027.

On this subject, Bolster works in coordination with your regulated advisers. In Accounting, Audit & Tax, from Shanghai and Shenzhen, it supports the company in preparing withholding, treaty forms and beneficial-ownership files. In Structuring & Formation, it reviews existing ownership chains for substance from Hong Kong, Amsterdam and Geneva, and supports capital amendments or reductions from Shanghai and Shenzhen. In Finance & Treasury, it assesses the choice between repatriating and retaining profits. Our partners are available to meet you in Geneva, Amsterdam, Hong Kong, Shanghai, Shenzhen and Kuala Lumpur.

This note is for general information only. It is not legal or tax advice; any decision should be assessed with your advisers.

Sources

1. Ministry of Finance and State Taxation Administration (MOF/STA), Announcement 2026 No. 27, "关于外籍个人股息红利个人所得税政策有关事项的公告", 1 September 2026, text reproduced by the Fujian Provincial Department of Finance, 2 September 2026 — https://czt.fj.gov.cn/ztzl/jsjfgz/202609/t20260902_7208092.htm
2. State Taxation Administration (STA), "China to tax foreign individuals' dividends from foreign-invested enterprises" (Xinhua report), 2 September 2026 — https://www.chinatax.gov.cn/eng/c101269/c5252146/content.html
3. STA, Announcement [2019] No. 35, "非居民纳税人享受协定待遇管理办法" (Administrative Measures for Non-resident Taxpayers Claiming Treaty Benefits), 14 October 2019 — https://fgk.chinatax.gov.cn/zcfgk/c100012/c5194891/content.html
4. STA, Announcement [2018] No. 9, "国家税务总局关于税收协定中"受益所有人"有关问题的公告", 3 February 2018 (Articles 4 and 5) — https://fgk.chinatax.gov.cn/zcfgk/c100012/c5194781/content.html
5. STA, Circular Guoshuihan [2009] No. 81, "国家税务总局关于执行税收协定股息条款有关问题的通知", 20 February 2009 (Article 3) — https://fgk.chinatax.gov.cn/zcfgk/c100012/c5194020/content.html
6. STA, Announcement [2014] No. 67, "股权转让所得个人所得税管理办法（试行）", 7 December 2014, amended in 2018 — https://fgk.chinatax.gov.cn/zcfgk/c100012/c5194500/content.html
7. STA and State Administration of Foreign Exchange (SAFE), Announcement 2013 No. 40 on tax filing for outbound payments, 9 July 2013, amended in 2018 (STA Announcement 2018 No. 31) and partly repealed in 2021 (STA/SAFE Announcement 2021 No. 19) — https://fgk.chinatax.gov.cn/zcfgk/c100012/c5194375/content.html
8. Standing Committee of the National People's Congress, Law on the Administration of Tax Collection (as amended on 24 April 2015), Articles 32, 51 and 69 — https://fgk.chinatax.gov.cn/zcfgk/c100009/c5195081/content.html
9. General Office of the STA, "关于明确2026年度申报纳税期限的通知" (税总办征科函〔2025〕64号), 10 December 2025 — https://fgk.chinatax.gov.cn/zcfgk/c102424/c5245729/content.html
10. STA, Announcement 2026 No. 20, "关于发布《全国税务行政处罚裁量基准（2026年版）》的公告", 28 September 2026, effective 1 November 2026, text reproduced by the Shanghai Municipal Tax Service — https://shanghai.chinatax.gov.cn/zcfw/zcfgk/swzsgl/202610/t481674.html
11. Inland Revenue Department, Hong Kong, Arrangement between the Mainland of China and the Hong Kong Special Administrative Region of 21 August 2006, consolidated text with protocols (Articles 10 and 24A) — https://www.ird.gov.hk/eng/pdf/Consolidated_Text_Mainland_HKSAR.pdf
12. Fedlex, Agreement between the Swiss Confederation and the People's Republic of China of 25 September 2013, SR 0.672.924.91 (Articles 10 and 24), in force since 15 November 2014 — https://www.fedlex.admin.ch/eli/cc/2014/623/fr
13. Tractatenblad 2013 No. 104, Verdrag tussen Nederland en de Volksrepubliek China, Beijing, 31 May 2013 (Articles 10 and 22) — https://zoek.officielebekendmakingen.nl/trb-2013-104.pdf
14. Inland Revenue Board of Malaysia (LHDN), Malaysia–China Double Taxation Agreement of 23 November 1985, synthesised text with the Multilateral Instrument (Article 10; Article 7 of the Multilateral Instrument) — https://www.hasil.gov.my/wp-content/uploads/ST-China.pdf
15. Ministry of Finance Singapore, "Ratification of the revised Agreement between Singapore and China for the Avoidance of Double Taxation", 17 September 2007 — https://www.mof.gov.sg/news-resources/newsroom/ratification-of-the-revised-agreement-between-singapore-and-china-for-the-avoidance-of-double-taxation/
16. Standing Committee of the National People's Congress, Company Law as revised on 29 December 2023, in force since 1 July 2024 (Articles 47, 54, 210, 224 and 225), published on gov.cn — https://www.gov.cn/yaowen/liebiao/202312/content_6923395.htm
17. State Council, Decree No. 784, "国务院关于实施《中华人民共和国公司法》注册资本登记管理制度的规定", 1 July 2024 (Articles 2 and 6) — https://www.mee.gov.cn/zcwj/gwywj/202407/t20240701_1080565.shtml
18. State Administration for Market Regulation (SAMR), Order No. 95, "公司登记管理实施办法", 20 December 2024, in force since 10 February 2025 (Articles 8, 10 and 19) — https://www.samr.gov.cn/zw/zfxxgk/fdzdgknr/fgs/art/2024/art_6580c00811be45bfa304c1273b74e294.html
19. SAFE, "资本项目外汇业务指引（2024年版）" (汇发〔2024〕12号), 3 April 2024, in force since 6 May 2024 (sections 7.2.2.3 and 7.2.3.2(3)) — https://www.gov.cn/zhengce/zhengceku/202404/content_6945036.htm
20. Inland Revenue Department, Hong Kong, "Foreign-sourced Income Exemption", accessed 25 October 2026 — https://www.ird.gov.hk/eng/tax/bus_fsie.htm
21. Hong Kong SAR Government (HK Talent Engage), "Taxation in Hong Kong and Your Home Place", 17 August 2026 — https://www.hkengage.gov.hk/en/essentials/career-business/taxation-in-hong-kong-and-your-home-place
22. Inland Revenue Authority of Singapore (IRAS), "Income received from overseas", accessed 25 October 2026 — https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/what-is-taxable-what-is-not/income-received-from-overseas
23. PwC, Worldwide Tax Summaries, "People's Republic of China — Corporate — Withholding taxes", reviewed 22 July 2026 — https://taxsummaries.pwc.com/peoples-republic-of-china/corporate/withholding-taxes
24. PwC, Worldwide Tax Summaries, "People's Republic of China — Individual — Taxes on personal income", reviewed 22 July 2026 — https://taxsummaries.pwc.com/peoples-republic-of-china/individual/taxes-on-personal-income
25. PwC, Worldwide Tax Summaries, "People's Republic of China — Individual — Residence", reviewed 22 July 2026 — https://taxsummaries.pwc.com/peoples-republic-of-china/individual/residence
26. PwC, Worldwide Tax Summaries, "Malaysia — Individual — Income determination", reviewed 16 June 2026 — https://taxsummaries.pwc.com/malaysia/individual/income-determination
27. China Briefing (Dezan Shira & Associates), "China Ends Dividend Tax Exemption for Foreign Individuals", 3 September 2026 — https://www.china-briefing.com/news/china-dividend-tax-foreign-individuals-august-2026-tax-brief/
28. China Briefing, "Tax Treaty Benefits Eligibility in China: Rising Scrutiny and Compliance Recommendations for Non-Resident Investors", 5 October 2026 — https://www.china-briefing.com/news/china-tax-treaty-benefits-eligibility-non-resident-investors/
29. China Briefing, "Beneficial Owner Status in China: What a Supreme People's Court Case Study Teaches Foreign Investors", 16 October 2026 — https://www.china-briefing.com/news/beneficial-owner-status-china-supreme-court-case-study/
30. Jingshi Law Firm (Shenzhen) (北京市京师（深圳）律师事务所), "香港跨境控股、红筹架构企业是否能享受税收协定优惠：从（2025）最高法行申4506号案看受益所有人判定与税务裁判尺度", 24 July 2026 — http://www.jingshsz.com/show-19-970-1.html
31. Acclime, "China Ends Tax Exemption on Dividends Received by Foreign Individuals", 4 September 2026 — https://china.acclime.com/news-insights/tax-exemption-ended-dividends-foreign-individuals/
32. Gaojin Law, "Registered Capital in China: the Five-Year Rule and the 30 June 2027 Deadline", 28 August 2026 — https://en.gaojinlaw.com/insights/china-registered-capital-five-year-rule-2027-deadline.html
33. Yicai (第一财经), "《公司注册资本信息公示规定（征求意见稿）》公开征求意见", 15 October 2026 — https://www.yicai.com/news/103394611.html
34. Eastmoney (东方财富网), citing 大河财立方, "注册资本公示新规征求意见 存量公司认缴期限设整改过渡期", 15 October 2026 — https://finance.eastmoney.com/a/202610153896666075.html
35. Gelonghui (格隆汇), "市场监管总局公开征求《公司注册资本信息公示规定(征求意见稿)》意见" (republication of the SAMR notice; comments due by 15 November 2026), 15 October 2026, via Sina — https://k.sina.cn/article_5115326071_130e5ae77020032n8w.html