18 Oct 2018
China Broadens Eligibility for Withholding Tax Deferrals by Foreign Reinvestors
The eligibility for withholding tax deferrals on the direct investments made by foreign investors using distributable profits has been significantly broadened. Full details of this extended entitlement were announced in a circular jointly-issued by the Ministry of Finance, the State Administration of Taxation and a number of other government bodies, following an earlier directive by the State Council.
The key elements of the changed entitlements are as follows:
- All projects and sectors not on the prohibited list with regard to foreign investment are now to be considered as eligible for withholding tax deferrals on any direct investment by foreign investors using distributable profits from a tax-resident enterprise on the mainland providing certain provisos are met. Previously, only certain specially-designated projects and sectors were considered to be eligible.
- This withholding tax deferral eligibility does not apply, however, in every instance of direct investment by foreign investors utilising distributable profits. More specifically, it applies in the case of certain equity investments, including an increase to the paid-in capital of an existing enterprise, the establishment of a new tax-resident enterprise and the acquisition of equity interest in an existing enterprise. It does not, however, apply to investments in newly-issued shares of listed companies, investments in shares converted from the capital surplus or retained earnings of listed companies and the acquisition of shares in listed companies (unless said investment is considered to be of strategic benefit).
- Any foreign investors deemed eligible for such a tax deferral, but who has yet to apply, may still submit a claim up to three years from the date of any initial tax payment.
For further details (in Chinese), please visit the following links: