New tax incentive for overseas investors investing in the PRC

• Citation: jd0139
• Date: 10 April 2018
• Published date: 10 April 2018
• Subject Matter: Economic Law

2020/11/24 New tax incentive for overseas investors investing in the PRC | China Law Insight

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CHINA LAW INSIGHT

New tax incentive for overseas investors

investing in the PRC

By King & Wood Mallesons on April 10, 2018

BY Duan Tao (Daisy) Cao Linlin King & Wood Mallesons’ Commercial &

Regulatory group

This article was firstly published by China Law and Practice, Q1 2018.

On December 21, 2017, the Ministry of Finance, the State Administration of Taxation

(SAT), the National Development and Reform Commission and the Ministry of Commerce

jointly issued tax circular Cai Shui [2017] No. 88, Circular on Policy Issues Concerning

Provisionally Not Levying Withholding Income Tax on Direct Investments by Foreign

Investors Made Using Distributed Profits (关于境外投资者以分配利润直接投资暂不征收预

提所得税政策问题的通知, Circular 88), which provides a temporary waiver of enterprise

income tax (EIT, usually at 10%, unless a preferential tax rate applies under a double tax

treaty or arrangement) for non-tax-resident enterprises (i.e. overseas investors) that make

direct investments in an encouraged industry with profits distributed by a tax-resident

enterprise in the PRC (Tax Deferral), if certain conditions are met. Subsequently, on

January 2, 2018, the SAT issued the SAT Announcement [2018] No.3, Announcement on

Issues Relevant to the Implementation of the Policy of Provisionally Not Levying

Withholding Income Tax on Direct Investments Made by Foreign Investors Using

Distributed Profits (关于境外投资者以分配利润直接投资暂不征收预提所得税政策有关执行

问题的公告, Announcement 3) in order to provide further guidance in this regard.Both

Circular 88 and Announcement 3 have a retrospective effect from January 1, 2017, which

means that the Tax Deferral applies to dividends or profit distributions derived by