China Tax Credits Policy to Foreign Investors?Direct Investment with Distributed Profits
The Ministry of Finance, the State Taxation Administration and the Ministry of Commerce jointly issued the "Announcement on the Tax Credit Policy for Direct Investment by Foreign Investors with Distributed Profits" on 30 June 2025. From 1 January 2025 to 31 December 2028, foreign investors who use the profits distributed by resident enterprises in China for direct reinvestment within China may enjoy tax credits if they meet the conditions.
- Preferential policies
Foreign investors who use the profits distributed by resident enterprises in China for direct reinvestment within China from 1 January 2025 to 31 December 2028 and meet the conditions may offset 10% of the investment amount against the tax payable of the foreign investors for the current year. If the offset is insufficient in the current year, it may be carried forward to the future.
Suppose a foreign investor receives dividends of 100 million yuan distributed by a resident enterprise within China, and all distributed dividends are used for direct reinvestment within China, 10% of these 100 million yuan, that is, 10 million yuan, can be used to offset the tax payable of the foreign investor for the current year.
For instance, if the tax payable by a foreign investor in the current year is 15 million yuan, then after the tax deduction, only 5 million yuan needs to be paid. If the tax payable for the current year is 8 million yuan, 8 million yuan will be offset, and the remaining 2 million yuan can be carried forward and offset in the subsequent years.
- Eligibility Requirements
Foreign investors who use the profits distributed by resident enterprises within the territory of China to offset the tax payable for direct reinvestment within the territory shall simultaneously meet the following conditions:
(1)
|
The profits distributed to foreign investors refer to dividends, bonuses and other equity investment income formed by the retained earnings distributed by resident enterprises in China to investors.
|
(2)
|
Direct domestic reinvestments made by foreign investors with their distributed profits include equity investments such as capital increase, new establishment, and equity acquisition made by foreign investors, but do not include new additions, capital increases, or acquisitions of shares of listed companies (except for strategic investments that meet certain conditions). Specifically, it refers to:
(a) Increase or transfer of the paid-in capital or capital reserve of resident enterprises within the territory of China;
(b) Investment in establishing new resident enterprises within the territory of China;
(c) Acquisition of equity in resident enterprises within the territory of China from non-related parties.
|
(3)
|
During the period of reinvestment by foreign investors within the territory of China, the industries engaged in by the invested enterprise fall within the national Catalogue of Industries Encouraged for Foreign Investment as listed in the Catalogue of Industries Encouraged for Foreign Investment.
|
(4)
|
Foreign investors who reinvest in the domestic project must continuously hold the reinvested equity for at least five years (60 months).
|
(5)
|
Where the profits of foreign investors used for direct investment within the territory of China are paid in cash, the relevant funds shall be directly transferred from the account of the profit-distributing enterprise to the account of the invested enterprise or the equity transferor. Before the direct investment, the funds shall not be circulated in other accounts at home and abroad. Where the profits of foreign investors used for direct investment within the territory of China are paid in non-cash forms such as physical assets or securities, the ownership of the relevant assets shall be directly transferred from the profit-distributing enterprise to the invested enterprise or the equity transferor. Before direct investment, they shall not be held on behalf of or temporarily held by other enterprises or individuals.
|
KAIZEN Group is equipped with experienced and highly qualified professional consultants and is therefore well positioned to provide professional advice and services in respect of the formation and registration of company, application for various business licenses and permits, any compliance, tax planning, audit, and accounting in China. Please call and talk to our professional consultants for details. |
