The State Administration of Taxation issued a document clarifying relevant issues regarding the policy of tax offset for overseas investors investing profits in direct investment.

On July 31st, the State Administration of Taxation issued an announcement regarding the policy of tax offset for overseas investors who directly invest their profits. The announcement points out that if overseas investors use the profits they receive to supplement the registered capital already subscribed by domestic resident enterprises, increase the actual paid-up capital or capital reserves, it falls under the category of "increasing or transferring actual paid-up capital or capital reserves of Chinese resident enterprises." When determining the amount of tax offset, overseas investors can choose to calculate based on 10% of the reinvestment amount or a lower dividend tax rate that may be applicable under a tax treaty. Once the relevant rate is chosen, when the investment is recovered after holding it for 5 years, they cannot apply a lower dividend tax rate as provided for in the tax treaty. The full text is as follows: Announcement by the State Administration of Taxation on Matters Concerning the Policy of Tax Offset for Overseas Investors Who Directly Invest Their Profits State Administration of Taxation Announcement No. 18 of 2025 In order to implement the "Announcement of the Ministry of Finance, State Administration of Taxation, and Ministry of Commerce on the Policy of Tax Offset for Overseas Investors who Directly Reinvest their Profits" (No. 2 of 2025), the following matters are hereby announced: 1. If overseas investors use the profits they receive to supplement the registered capital already subscribed by domestic resident enterprises, increase the actual paid-up capital or capital reserves, it falls under the category of "increasing or transferring actual paid-up capital or capital reserves of Chinese resident enterprises." 2. Overseas investors shall confirm the start of the calculation of the holding period of the reinvestment from the month stated in the "Profit Reinvestment Statement" issued by the competent commercial department. 3. After benefiting from the tax offset policy for reinvestment, if the invested enterprise reduces its capital, withdraws capital, or transfers equity, the calculation of the holding period of the recovered part of the reinvestment shall stop in the month when the invested enterprise completes the equity change or cancellation registration procedures. Before the invested enterprise com...