Dividend Tax Treatment Across Jurisdictions and the Application of Tax Treaty Benefits

A dividend refers to the distribution of a company’s after-tax profits to its shareholders in proportion to their shareholding ratio. This article examines the dividend tax rules applicable in seven key jurisdictions: China Mainland, Hong Kong S.A.R., India, Italy, Singapore, the United Arab Emirates, and Vietnam. It outlines standard domestic withholding tax treatments and preferential rates available under applicable double tax treaties.

From a legal perspective, dividend distributions are heavily regulated across nearly all jurisdictions to protect corporate creditors from improper transfer of profits. In general, companies may only distribute dividends once the following statutory preconditions are satisfied:

• Dividends may only be paid out of accumulated after-tax profits. Companies must first offset accumulated losses and allocate statutory reserves in accordance with local law. Only remaining residual profits qualify for dividend distribution.
• All dividend distributions require formal approval via valid shareholder or board resolutions, complying with local procedural and corporate governance requirements.

For multinational groups, cross-border dividend distribution is the most common mechanism for profit repatriation. While overseas subsidiaries may repatriate locally generated profits to parent entities, such transactions carry material tax implications. Domestic tax legislation and bilateral tax treaties in each jurisdiction set out clear withholding tax rules for dividends paid to non-resident shareholders.

In most jurisdictions, local dividend paying subsidiaries act as statutory withholding agents. They are required to deduct and remit applicable withholding tax from the gross dividend amount at the time of payment to non-resident recipients.

Domestic tax rules by jurisdictions

Under domestic law, the withholding tax rates for outbound dividends paid to non-resident corporate shareholders are as follows:

• China Mainland: a standard 10% withholding tax applies to dividends distributed to non-resident corporate shareholders;
• India: a 20% base withholding tax is imposed on dividends paid to non-resident companies, excluding applicable surcharges and cess;
• Italy: a 26% standard withholding tax applies to dividends distributed to non-resident corporate shareholders. A reduced effective rate of 1.2% applies to qualifying EU/EEA white-listed corporate recipients, while a 0% rate is available under the EU Parent-Subsidiary Directive for eligible intra-EU distributions.

• Hong Kong S.A.R., Singapore, the United Arab Emirates, and Vietnam: No domestic withholding tax is levied on outbound dividends paid to non-resident corporate shareholders.

Nearly all jurisdictions have concluded bilateral tax treaties to mitigate double taxation. Treaty provisions often provide reduced withholding tax rates that supersede domestic statutory rates for eligible taxpayers. Notably, treaty rates may differ from updated domestic rules. For example, most of Vietnam’s tax treaties prescribe tiered dividend withholding tax rates of 5%, 10%, or 15%; however, current domestic law exempts outbound dividends from withholding tax, so the domestic exemption prevails in practice since more favorable.

Almost all bilateral tax treaties contain a dedicated dividend article that allocates taxing rights between the source jurisdiction of the dividend income and the residence jurisdiction of the shareholder recipient. Under the standard treaty framework:

1. The shareholder’s residence jurisdiction retains primary taxing rights over dividend income;

2. The paying company’s residence jurisdiction may levy limited withholding tax at capped treaty rates, typically structured in two tiers: a default higher rate and a reduced preferential rate for shareholders meeting minimum shareholding ratio and holding period criteria.

To prevent treaty abuse and ensure legitimate benefit claims, jurisdictions uniformly enforce strict eligibility conditions for preferential treaty rates:

• Valid tax residency documentation. Recipients must hold valid tax resident status in the treaty partner jurisdiction and submit official proof, such as a Tax Residency Certificate (TRC), and jurisdiction-specific forms. Documentation must be submitted prior to dividend payment, as treaty benefits are generally not retroactive.

• Beneficial ownership requirement: Treaty preferential rates apply exclusively to beneficial owners of the dividend income. This rule prevents shell companies and conduit entities from accessing treaty benefits, even if they hold formal tax residency status in a treaty jurisdiction.

• Principal purpose test. Tax authorities may deny treaty benefits if the primary purpose of establishing the shareholding structure or executing the transaction is to obtain tax advantages, irrespective of residency or beneficial ownership status.

• Shareholding thresholds and holding periods. Reduced treaty rates are conditional on minimum equity participation and continuous holding periods. Examples include a 25% minimum holding held for 365 days under the new China–Italy treaty, and a 10% minimum holding for the 15% under the India–Italy treaty. Most jurisdictions require direct shareholdings, and qualifying shareholding levels must be maintained as of the dividend payment date.

• Anti-abuse and procedural compliance: Eligible recipients must be valid treaty-state tax residents with no permanent establishment in the source jurisdiction connected to the dividend generating investment. Tax authorities widely apply the principal purpose test to deny artificial tax planning arrangements. Withholding agents must adhere to strict local rules to avoid penalties.

Tax treaty benefits do not apply automatically. Recipients must proactively claim preferential treaty treatment where treaty rates are more favorable than domestic source jurisdiction rules.

A core objective of tax treaties is to eliminate or mitigate double taxation of cross-border income. While the shareholder’s residence state retains full taxing rights over dividend income, residence jurisdictions generally provide foreign tax credits or full exemptions for dividend income already subject to withholding tax at source, eliminating double taxation.

Jurisdiction-specific treaty dividend tax rates

China Mainland:

• Domestic rate: 10% withholding tax ondividends paid to non-resident companies.

• Tax treaty rates: The rates below may apply to eligible recipients who are tax residents of the following jurisdictions:

• Hong Kong S.A.R.: 5% (minimum 25% shareholding, held continuously for 365 days), or 10% in other cases;
• India: 10%;

• Italy: 5% (minimum 25% shareholding, held continuously for 365 days), or 10%in other cases;

• Singapore: 5%, (minimum 25% shareholding), or 10% in other cases

• United Arab Emirates: 7%; and

• Vietnam: 10%;

Hong Kong S.A.R:

• Domestic rate: no withholding tax on outbound dividend distributions to non-resident shareholders.

• Tax treaty rates: no treaty withholding tax applies, as Hong Kong imposes no outbound dividend withholding tax. All dividend payments to non-residents are made on a gross basis.

India

• Domestic rate: 20% withholding tax on dividends paid to non-resident companies.

• Tax treaty rates: The rates below may apply to eligible recipients who are tax residents of the following jurisdictions:

• China Mainland: 10%;

• Hong Kong: 5%;

• Italy: 15% (minimum 10% equity holding); 25% default rate otherwise. However, since under Indian domestic laws the statutory domestic rate is lower, the latter prevails in practice;

• Singapore: 10%; (minimum 25% equity holding) or 15% in other cases.

• United Arab Emirates: 10%; and

• Vietnam: 10%.

Italy:

• Domestic rate: 26% standard withholding tax on dividends paid to non-resident companies (reduced to 1.2% only for EU/EEA “white-list” corporate recipients, or 0% under the EU Parent–Subsidiary Directive).

• Tax treaty rates: The rates below may apply to eligible recipients who are tax residents of the following jurisdictions:

• China Mainland: 5% (minimum 25% shareholding, held continuously for 365 days) or 10% in other cases;

• Hong Kong S.A.R.: 10%;

• India: 15% applicable if the Indian shareholder holds at least 10% of the equity of the distributing Italian company, otherwise 25% rate applies;

• Singapore: 10%;

• United Arab Emirates: 5% (minimum 25% holding) or 15% in other cases; and

• Vietnam: 5%, 10%, or 15% tiered rates according to the Vietnamese shareholders’ equity holding ratio.

Singapore:

• Domestic rate: no withholding tax on outbound dividends to non-resident shareholders.

• Tax treaty rates: no outbound dividend withholding tax applies, and dividend payments to non-resident recipients are made on a gross basis.

United Arab Emirates:

• Domestic rate: no withholding tax on outbound dividends to non-resident shareholders.

• Tax treaty rates: no outbound dividend withholding tax applies, and dividend payments to non-resident recipients are made on a gross basis.

Vietnam:

• Domestic rate: no withholding tax on outbound dividends to non-resident companies.

• Tax treaty rates: Vietnam’s treaties with the other six jurisdictions prescribe a different withholding tax rate. However, the domestic withholding tax exemption prevails, so no tax is deducted from outbound dividend payments.

At PHC Advisory, we support multinational groups at every stage of cross-border dividend repatriation, from the shareholder’s resolution to the actual remittance, covering China Mainland, Hong Kong S.A.R., India, Italy, Singapore, the United Arab Emirates, Vietnam and other jurisdictions. Our services include analyzing statutory withholding tax costs, assisting with treaty preferential benefit claims, guiding clients on home-jurisdiction foreign tax credit or exemption relief to eliminate double taxation, and optimizing groups’ overall effective tax rates on repatriated offshore profits.

At PHC AHC Advisory, we can offer you full support on matters regarding doing business in China, or any other issues your business may face. If you would like to know more about policies relevant to your business in Italy or Asia, please contact us at info@phcadvisory.com.

PHC Advisory is a company of  DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients’ financial transparency and compliance.

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