Driven by the ongoing negotiations with major trade partners – the European Union and the USA – China’s Ministry of Finance, State Taxation Administration, and Ministry of Commerce announced a tax credit policy for foreign-invested enterprises.
At a glance
The policy, effective from January 1, 2025, through December 31, 2028, offers a corporate income tax credit equal to 10% of the reinvested amount:
- Eligible reinvestments: capital increases, establishment of new resident enterprises, or acquisitions of shares from unrelated parties in enterprises operating in industries listed in the Catalogue of Encouraged Industries for Foreign Investment.
- Reinvestment funds must come from distributed profits (dividends, bonuses, or other equity income) paid out by Chinese resident enterprises.
- The investment must be held continuously for at least five years; early withdrawal invalidates the tax credit and requires repayment of deferred taxes.
- Unused tax credits can be carried forward beyond 2028 until fully utilized.
- The policy applies retroactively to qualifying reinvestments made from January 1, 2025, to the announcement date.
- If a tax treaty between China and the investor’s country of origin provides a lower tax rate on dividends or equity income, the treaty rate prevails.
- Funds must be transferred directly from the distributing enterprise to the investee or equity seller without passing through other accounts.
In other words
Foreign companies that allocate profits generated in China toward expanding or enhancing their local business activities may qualify for a domestic tax deduction worth 10% of the reinvested sum. Unused tax credits may be carried forward through December 31, 2028.
Eligible forms of reinvestment encompass financial contributions to Chinese organizations, including the creation of new enterprises or the purchase of ownership interests from independent third parties. However, investments in publicly traded shares are not eligible under this policy.
Additionally, foreign investors may retroactively apply for tax credits on eligible reinvestments made on or after January 1, 2025.
This policy aims to encourage long-term foreign investment in strategic sectors and support China’s economic development goals.
You can refer to the original announcement on MOFCOM’s official site.
Encouraged Industries
China’s Catalogue of Encouraged Industries for Foreign Investment highlights sectors that align with the country’s strategic development goals and offer incentives like tax credits, tariff exemptions, and fast-track approvals.
Priority Sectors Include:
- Advanced Manufacturing:
- High-performance equipment
- Robotics and automation
- Semiconductor components
- Green Technology:
- Renewable energy (solar, wind, hydrogen)
- Energy-saving and low-carbon upgrades
- Environmental protection equipment
- Digital Economy:
- AI and machine learning
- Cloud computing and big data
- Smart logistics and e-commerce infrastructure
- Modern Services:
- Healthcare and elderly care
- Vocational education and training
- Cultural tourism and pet care
- New Energy Vehicles (NEVs):
- Battery production
- EV components and R&D
- Emerging Technologies:
- Generative AI
- Biotechnology
- Next-gen communication systems
These industries are part of China’s push for innovation-driven, sustainable growth.
Invest in China Safely
As global economic dynamics evolve and regulatory frameworks shift, navigating China’s investment landscape requires both precision and foresight. The latest tax credit policy for foreign-invested enterprises signals China’s strategic intent to retain foreign capital while fostering long-term growth. For businesses weighing the risks and rewards of reinvestment, expert guidance is key. Reach out to our experts at contact@sjgrand.cn for a China strategy custom-made for your industry and business needs.
Latest Articles:
- The Complete Guide to Sourcing from China: Your Path to Business Success
- Amendments to China Anti-Unfair Competition Law 2025
- China’s R&D Super Deduction Policy
- New Tax Incentive 2025: China’s Push to Keep Foreign Companies from Walking Away
- Strategic Tax Optimization for Foreign Subsidiaries in China
