Policy of Tax Exemption on Re-invested Profits of the Foreign Invested Enterprise in China
Effective on 1st Jan 2017
The tax exemption is subject to the following conditions being met:
1. re-investment fund should be directly paid to target companies;
2. re-investment projects should fall under the "encouraged category" in the Guidance List of Foreign Investment in Industries 外商投资产业指导目录;
3. the re-invested profits includes bonus issue, and retained profits of previous years;
4. re-investment can take the form of capitalization of retained profits 转入资本公积, capital contribution to newly set up entities in China, or acquiring domestically funded entities.
The joint notice of the Ministry of Finance, State Administration Taxation (SAT), State Development & Reform Commission (SDRC), and Ministry of Commerce provide that where the foreign investor takes back the re-invested profits by share transfer, share buy-back or the liquidation of foreign investment enterprises, the foreign investor shall declare to the tax authority the tax on previously tax-exempt dividend and bonus issue, within 7 days of receiving the money.