Tax Credit on Profits Reinvestment by Overseas Investors in China
On 27 June 2025, the Ministry of Finance, State Taxation Administration and Ministry of Commerce of the PRC jointly released the Announcement on the Tax Credit Policy for Overseas Investors' Direct Investment with Distributed Profits, which shall be implemented from 1 January 2025 to 31 December 2028. Overseas investors can apply retroactively for tax credit on qualified investment made between 1 January 2025 and the release date of the announcement.
According to the announcement, during the period from 1 January 2025 to 31 December 2028, overseas investor who makes qualified direct investments in China using profits distributed from resident enterprises within China can claim a 10% tax credit on the reinvestment amount to offset the overseas investor’s corporate income tax payable on the dividends, interests, royalties, and other income obtained from the profit distribution enterprise after the reinvestment date. If the credit cannot be fully utilized in the year of investment, it can be carried forward to subsequent years. If there is still unused credits after 31 December 2028, it can continue to be enjoyed until the unused credit is zero.
To enjoy the tax credit, the following conditions shall be satisfied simultaneously:
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The funds used for investment must be the earning derive from equity investments, such as dividends and bonuses generated by the retained incomes that are actually distributed to the investors by resident enterprises in China.
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The form of reinvestment includes equity investment such as capital increase, new establishment and equities acquisition, but excludes the increase, conversion or acquisition of shares of listed companies (except for qualified strategic investment). Specifically refers to: increasing or converting paid-in capital or capital reserve of resident enterprises in China; establishing new resident enterprises in China; acquiring equities of resident enterprises in China from unrelated parties.
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The invested enterprises must operate in the industries listed in the national encourage catalogue of Catalogue of Encouraged Industries for Foreign Investment.
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The reinvestment must be held continuously for at least 5 years (60 months) or more. For early withdrawal recover of investment, the investor must proportionally reduce the total tax credit entitlement. If any portion of the tax credit has already been used in excess of the adjusted entitlement, the excess credit must be repaid as tax within seven days after the withdrawal of investment.
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Cash profits used by overseas investors for reinvestment shall be transferred directly from the account of profit distribution enterprise to that of the invested enterprise or the equity transferor and shall not be circulated in other accounts at home and abroad before reinvestment. For non-cash profits used for reinvestment, such as physical objects or negotiable securities, the ownership of the relevant assets shall be transferred directly from the profit distribution enterprise to the invested enterprise or the equity transferor and shall not be held by other enterprises or individuals on behalf of the overseas investor or held temporarily before reinvestment.
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