Tax Incentives for Foreign Investors Reinvesting in China
- rsatax
- Jul 1
- 2 min read
Updated: Jul 3
According to an official announcement jointly issued by the Ministry of Finance, the State Administration of Taxation, and the Ministry of Commerce, a tax credit policy will apply to foreign investors who reinvest distributed profits into China through direct investment. This measure aims to implement the decisions of the Party Central Committee and the State Council, in line with the Corporate Income Tax Law and its implementing regulations. The tax preferential policies for foreign investors reinvesting profits are outlined as follows:
Foreign investors who directly reinvest distributed profits from Chinese resident enterprises into eligible domestic projects between January 1, 2025, and December 31, 2028, are entitled to a tax deduction equivalent to 10 per cent of the investment amount.
If the deductible amount exceeds the tax payable in the current year, the unused portion can be carried forward to subsequent years until fully utilised. Qualified investments include capital increases, the establishment of new enterprises, or the acquisition of equity from unrelated parties, provided that the invested enterprises operate in industries listed as encouraged. The investment must be held continuously for at least five years (60 months).
Where a tax treaty between China and the investor’s jurisdiction provides a lower tax rate on dividends or other equity investment income, the treaty rate will prevail.
This policy is effective from January 1, 2025, until December 31, 2028. Tax credits generated during this period can continue to be applied beyond 2028 until fully offset. Investments made between January 1, 2025, and the date of this announcement are eligible for retroactive application, while investments made prior to 2025 do not qualify.
For the purpose of this policy, “overseas investors” refers to non-resident enterprises as defined under China’s Corporate Income Tax Law, while “Chinese resident enterprises” refers to entities legally incorporated and operating within the territory of China.
The distributed profits that qualify for reinvestment include dividends, bonuses, and other forms of equity investment income paid from actual retained earnings by domestic enterprises to foreign investors.
To be eligible, investments must be made in industries listed in the Catalogue of Industries Encouraged for Foreign Investment. Furthermore, the investment must be maintained for no less than five years. If the investor withdraws the investment after the five-year period, the deferred taxes must be settled within seven days. If the investment is withdrawn before five years, the tax incentive becomes invalid, requiring repayment of the deferred taxes and a proportional reduction in the tax credit.
Analysts note that this policy is expected to further encourage foreign investors to reinvest in the Chinese market. It reflects China’s broader commitment to creating an open and transparent business environment by reducing barriers, offering fiscal incentives, and fostering long-term foreign investment.