Can I Benefit from China’s Reinvestment Tax Incentive Policy?

On June 27, 2025, multiple Chinese authorities jointly launched a new tax incentive policy for overseas investors reinvesting profits. From January 1, 2025, to December 31, 2028, eligible investors who reinvest profits into qualified domestic enterprises can enjoy a 10% corporate income tax credit. If the credit exceeds the annual tax liability, unused amounts may be carried forward indefinitely. This policy offers a particularly attractive advantage for foreign-invested enterprises in China—especially manufacturing and tech companies committed to continuous innovation.

Is My Reinvestment Eligible?

The Announcement on Tax Credit Policies for Overseas Investors’ Direct Investment Using Distributed Profits jointly issued by China’s Ministry of Finance, State Taxation Administration, and Ministry of Commerce specifies eligibility criteria:

• The profits distributed to overseas investors must be dividends, bonuses, or other equity-based returns derived from retained earnings of Chinese resident enterprises.
• Reinvestments using these profits must be equity investments (e.g., capital increase, new establishment, or equity acquisition), excluding investments in listed company shares unless qualified as strategic investments.

Eligible reinvestment methods include:

• Increasing or transferring paid-in capital or capital reserves of Chinese resident enterprises;
• Establishing new resident enterprises within China;
• Acquiring equity in Chinese resident enterprises from non-related parties.

Reinvested profits must target industries listed in the <Encouraged Foreign Investment Industry Catalogue> and be held continuously for ≥5 years (60 months).

Investment execution rules:

• Cash payments: Funds must be transferred directly from the distributing enterprise to the investee/equity transferor’s account—no intermediary accounts permitted.
• Non-cash payments (e.g., physical assets/securities): Ownership must be transferred directly—no temporary holding by third parties allowed.

You can use the flowchart below to determine if your investment qualifies.

Case Study: Calculating Your Tax Savings

Let’s consider that a US-based company (e.g., ABC Company) holds a subsidiary in China. In 2025, ABC receives CNY 10 million in distributed profits from its Chinese subsidiary. To expand its market presence, ABC reinvests the full amount as registered capital to establish a new domestic enterprise operating in an industry listed in the <Encouraged Foreign Investment Industry Catalogue>. The funds are transferred directly to the new entity’s bank account, with a planned operational period of 10 years.

Qualification Analysis:

1. Profits are dividends from retained earnings of a Chinese resident enterprise;
2. Funds are used as new registered capital to establish a domestic resident enterprise;
3. The new entity operates within the <Encouraged Catalogue>;
4. Reinvestment is executed via direct cash transfer;
5. Holding period exceeds 60 months.

Result: ABC qualifies for the tax incentive.

• Tax credit = CNY 10 million × 10% = CNY 1 million

Scenario 1: ABC’s 2025 tax liability = CNY 1.2 million

• Tax payable after credit: CNY 1.2M - CNY 1M = CNY 200,000

Scenario 2: ABC’s 2025 tax liability = CNY 800,000

• Credit utilized: CNY 800,000 (no tax due in 2025)
• CNY 200,000 carried forward to offset 2026 taxes. 
  
  

Conclusion

China’s high-tech sectors—such as e-commerce services and aerospace manufacturing—continue to attract growing foreign investment. This new tax incentive directly addresses investor concerns about complex reinvestment procedures, encouraging overseas investors to actively channel profits back into China’s market. If your company may qualify, reach out to Hongda today. We’ll help you secure this strategic advantage.