Ministry of Finance in Beijing Photo: VCG

Qualified overseas investors directly reinvesting distributed profits from Chinese resident enterprises into eligible domestic projects between January 1, 2025 and December 31, 2028 can enjoy tax deduction of 10 percent of their investment, according to an official announcement on Monday.  

The amount that is not enough to be deducted in the current year can be carried forward to the future. Eligible investments include capital increases or new enterprises in encouraged industries, held for at least five years, according to an announcement jointly published by the Ministry of Finance, the Ministry of Commerce and the State Administration of Taxation.

According to the announcement, if a tax treaty between China and a foreign government specifies a tax rate lower than 10 percent for dividends or other equity investment income, the treaty rate shall apply. 

This policy is effective from January 1, 2025, to December 31, 2028. Remaining credits post-2028 can be used until depleted. Investments from January 1, 2025 to this announcement's release may retroactively apply for credits, while pre-2025 investments are considered ineligible.

For this announcement, "overseas investors" refers to non-resident enterprises as defined in the Law of China on Enterprise Income Tax. "Chinese resident enterprises" refers to enterprises legally established within China.

According to the announcement, the profits distributed to foreign investors are dividends, bonuses, and other types of investment income that are actual retained earnings distributed by domestic resident enterprises in China to the investors.

Qualified investments include increasing capital, establishing new enterprises, or acquiring equity from non-related parties (excluding public company shares, except for qualifying strategic investments), read the announcement.

Invested enterprises must operate in industries listed in the country's Catalogue of Industries Encouraged for Foreign Investment. Investments must be held for at least five years (60 months).

If investments are withdrawn after five years, deferred taxes must be paid within seven days. If withdrawn before five years, the investment is deemed ineligible, requiring repayment of deferred taxes and a proportional reduction in tax credits, read the announcement.

Analysts said that the tax credit policy can further boost overseas investors' willingness to invest in China.

China is proactively encouraging overseas and foreign investment by easing market access restrictions, offering tax and financial incentives, and enhancing the business environment, Yang Delong, chief economist at Shenzhen-based First Seafront Fund, told the Global Times on Monday.

Its steadfast commitment to high-level openness and fostering a welcoming climate for overseas investors continues to drive efforts to attract and sustain foreign capital, Yang noted.

Global Times