Dividend Individual Tax Planning under VIE Structure A Wealth Management Practical Guide

Dividends and Personal Income Tax under the VIE Structure Best Practices in Wealth Management

With the continuous development of global capital markets, more and more Chinese companies are listing in overseas capital markets. The VIE Variable Interest Entities structure, as one of the mainstream models, is widely used in industries restricted to foreign investment, such as internet, education, and cultural media. In recent years, the VIE structure has not only become an important tool for enterprises to achieve overseas financing and listing, but also a key vehicle for high-net-worth individuals to manage their wealth.

However, under the VIE structure, how to arrange shareholder dividends and conduct compliant personal income tax planning has become a major concern for both enterprises and investors.

1. Overview of the VIE Structure and Dividend Mechanism

The VIE structure essentially achieves control over a domestic operating entity through contractual arrangements rather than equity ownership. In a typical VIE structure, the overseas listing entity usually establishes a WFOE Wholly Foreign-Owned Enterprise in China, which signs a series of agreements-such as exclusive service agreements, voting rights agreements, and equity pledge agreements-with the domestic operating entity and its shareholders. These agreements allow the overseas entity to exert control and consolidate the financial statements of the domestic company.

Regarding dividends, profits are typically first distributed from the domestic operating entity to the WFOE, then passed up to the offshore holding company, and finally distributed to offshore investors or the actual controller. Although this multi-tiered distribution mechanism is structurally complex, it provides enterprises with more room for tax planning.

2. Personal Income Tax Considerations under the VIE Structure

According to China’s current tax laws, individuals receiving income from overseas are required to pay personal income tax. In the VIE structure, the ultimate controller often indirectly holds equity through offshore companies. When dividends eventually reach the individual’s account, they may face significant tax liabilities.

The State Taxation Administration’s 2025 announcement on several issues concerning the taxation of cross-border income clearly states that dividends received by Chinese tax residents from abroad should be declared and taxed at a 20% proportional rate under the category of interest, dividends, and bonuses. If the income originates from a non-resident enterprise without a permanent establishment or place of business in China, it may also be subject to withholding tax.

Under the VIE structure, when dividends eventually flow into personal accounts, it is essential to consider both domestic and foreign tax policies comprehensively to avoid double taxation while ensuring compliance with tax reporting obligations. For example, some high-net-worth individuals set up family trusts or offshore companies as holding platforms to optimize tax outcomes and achieve asset protection.

3. Recent Cases and Trends in Tax Planning

In recent years, many VIE-structured companies that have completed overseas listings have seen their ultimate controllers gradually withdraw dividends for personal consumption or reinvestment. For instance, the founder of a well-known online education platform chose to establish a family office and engage in diversified asset allocation after receiving dividends through an offshore holding company, while working with tax advisors to optimize the tax structure.

Other companies prefer to retain profits in offshore entities for reinvestment or acquisitions rather than distribute them immediately. While this approach temporarily avoids personal income tax, it carries the risk of higher future tax costs.

An increasing number of enterprises and high-net-worth individuals are placing greater emphasis on forward-looking and compliant tax planning.

4. Best Practices in Wealth Management

To effectively manage dividends and tax planning under the VIE structure, the following best practices should be followed

1. Early Planning and Rational Shareholding Structure

At the initial stage of building a VIE structure, future dividend pathways and tax implications should be fully considered. Establishing an offshore company as a holding platform can facilitate centralized profit management and reinvestment, while also providing flexibility for future tax planning.

2. Leverage Tax Treaties and Credit Mechanisms

China has signed tax treaties with many countries and regions, allowing tax credits for taxes paid abroad. Effectively utilizing these treaties can help reduce overall tax burdens.

3. Engage Professional Tax Advisors for Compliance Planning

Tax issues under the VIE structure span multiple jurisdictions. It is advisable to engage professional tax advisory teams to develop customized tax planning strategies based on the company’s operational realities.

4. Monitor Policy Changes and Maintain Compliance Reporting

As China strengthens its regulation of cross-border capital flows and tax administration, companies and individuals must closely monitor policy developments to ensure that dividend arrangements comply with tax laws and avoid legal risks.

5. Integrate with Family Wealth Succession Planning

For high-net-worth individuals, dividends are not only a source of wealth but also a critical tool for wealth succession. Establishing family trusts or charitable foundations can help optimize taxes while facilitating intergenerational wealth transfer and fulfilling social responsibilities.

Conclusion

The VIE structure offers Chinese enterprises an effective path to international markets and presents new opportunities-and challenges-for personal wealth management. When it comes to dividends and personal income tax, only through early planning, professional tax strategy, and compliant execution can wealth be safeguarded, tax efficiency improved, and long-term wealth succession achieved. For both enterprises and high-net-worth individuals, this is not merely a financial decision, but a strategic and forward-looking consideration.