Core Viewpoint - The article discusses a new tax credit policy for foreign investors in China, effective from January 1, 2025, to December 31, 2028, aimed at stabilizing foreign investment and encouraging reinvestment of profits [1]. Policy Highlights - The new policy allows foreign investors to offset 10% of their taxable income against the amount invested in direct investments in China from profits distributed by Chinese resident enterprises during the specified period [2][3]. - The policy emphasizes that the profits must come from actual distributions, such as dividends, and not from retained earnings [2]. Core Conditions - **Profit Source**: Profits must be derived from actual distributions of retained earnings from Chinese resident enterprises [2]. - **Investment Method**: Investments must be direct, including capital increases, establishment of new resident enterprises, or acquisition of equity from non-related parties [3]. - **Investment Industry**: The invested enterprises must belong to the encouraged categories listed in the "Encouraged Foreign Investment Industry Directory" [5]. - **Holding Period**: Foreign investors must hold their reinvested assets for at least 5 years (60 months) [7]. - **Direct Fund Flow**: Profits used for direct investment must be transferred directly without intermediary accounts [8]. Comparison of New and Old Policies - The new policy introduces a tax credit in addition to deferred tax benefits, allowing for a 10% tax offset based on the investment amount [10]. - The scope of eligible investments is narrowed to only those in encouraged industries, unlike the previous policy which allowed broader investment options [10]. - A mandatory 5-year holding period is introduced, with penalties for early withdrawal affecting tax credits [10]. Additional Notes - Foreign investors can apply for retroactive tax credits for eligible investments made between January 1, 2025, and the announcement date of the policy [11]. - The taxable amount that can be offset includes dividends, interest, and royalties received after the reinvestment date [11].

Core Viewpoint - Countries worldwide are implementing measures to attract foreign direct investment (FDI) to boost economic development, with China continuously optimizing its business environment to encourage reinvestment of overseas capital [1] Group 1: Policy Developments - In June 2025, the Ministry of Finance, State Administration of Taxation, and Ministry of Commerce jointly issued the "Announcement on Tax Credit Policy for Foreign Investors Directly Investing with Distributed Profits" (Announcement No. 2 of 2025), effective from January 1, 2025, to December 31, 2028 [2] - The new tax credit mechanism allows foreign investors to receive a 10% tax credit on the amount reinvested from profits distributed by Chinese resident enterprises, applicable to their corporate income tax [2][4] - The 2025 tax credit policy is an upgrade from the previous deferred tax policy, allowing for both deferred tax and current tax credit, thus providing a more direct incentive for reinvestment [6] Group 2: Eligibility Criteria - To qualify for the tax credit, foreign investors must meet five specific conditions, including using actual distributed profits for reinvestment, investing directly in eligible projects, and holding the investment for at least five years [2][4][11] - The investment must be directed towards industries listed in the "Encouraged Foreign Investment Industry Directory," reflecting a shift towards promoting high-tech and advanced manufacturing sectors [9][8] Group 3: Implementation and Practical Considerations - The tax credit can only offset taxes on income derived from the reinvested profits, such as dividends and royalties, and does not apply to capital gains [17] - The policy allows for carryover of unused tax credits to future years, enhancing the financial flexibility for foreign investors [15] - There are practical concerns regarding the calculation of tax credits in cases of early withdrawal of investments and the implications of changes in industry classification on tax credit eligibility [16][17] Group 4: Historical Context and Comparison - The 2018 deferred tax policy allowed foreign investors to defer tax on reinvested profits without a specific expiration date, while the 2025 tax credit policy introduces a defined timeframe for evaluation and adjustment [13][12] - The 2025 policy reflects a tightening of eligibility criteria compared to the 2018 policy, focusing on encouraging investment in priority sectors rather than a broader range of industries [8][9] Group 5: Future Outlook - The introduction of the tax credit policy signals China's commitment to enhancing the attractiveness of its market for foreign investment, particularly in strategic sectors [17] - Companies are encouraged to assess their eligibility and investment strategies in light of the new policy to maximize the benefits of reduced tax burdens and improved capital efficiency [17]

《公告》要求，境外投资者在投资满5年（60个月）后收回享受税收抵免政策的全部或部分直接投资 的，其收回投资对应的境内居民企业分配利润，应在收回投资后7日内向利润分配企业所在地税务机关 申报补缴递延的税款，再投资税收抵免结转余额可抵减其应纳税款。 境外投资者在投资不满5年（60个月）时收回享受税收抵免政策的全部或部分直接投资的，其收回投资 对应的境内居民企业分配利润视为不符合《公告》规定的税收优惠条件，境外投资者除按前款规定补缴 递延的税款外，还应按比例减少境外投资者可享受的税收抵免额度。 境外投资者享受《公告》规定的税收抵免政策在2028年12月31日后仍有抵免余额的，可继续享受至抵免 余额为零为止。境外投资者在2025年1月1日至《公告》发布前发生的符合条件的投资，可自《公告》发 布之日起申请追补享受税收抵免政策。 ◎记者 李苑 财政部、税务总局和商务部近日发布的《关于境外投资者以分配利润直接投资税收抵免政策的公告》 （下称《公告》）明确，境外投资者以中国境内居民企业分配的利润，在2025年1月1日至2028年12月31 日期间用于境内直接投资符合条件的，可按照投资额的10%抵免境外投资者当年的应纳税额，当 ...