Core Viewpoint - The recent policy announcement by the State Taxation Administration aims to provide tax incentives for foreign investors reinvesting profits in China, enhancing the attractiveness and competitiveness of the Chinese market [1][2]. Group 1: Policy Background and Objectives - The new tax credit policy was introduced in June 2023, building on the deferred tax policy for profit reinvestment established in 2018, to encourage foreign investors to reinvest in China [1]. - The policy is part of China's broader strategy to deepen high-level opening-up and promote foreign investment [1]. Group 2: Implementation and Support - A policy briefing was held for cross-border enterprises to clarify the new tax credit policy, including its applicability, application process, and compliance requirements [1][2]. - The Long Spring Tax Bureau has initiated a "one-on-one" precise policy guidance approach for foreign enterprises, ensuring effective communication of the policy benefits [2]. Group 3: Impact and Future Steps - Since the introduction of the deferred tax policy in 2018, over 2.1 billion yuan has been facilitated in profit reinvestment by foreign investors in Changchun [2]. - Several companies, including Grammer Vehicle Interiors (Changchun) Co., Ltd., have begun the process of applying for the tax credit, indicating a positive response to the new policy [2].

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]