Great New Policy! Foreign Investors Get a 10 % Tax Credit on Profit Re-investment
I. Core of the Policy: Re-invest Your Profits, Cut Your Tax Bill on the Spot
The Ministry of Finance, the State Taxation Administration and the Ministry of Commerce jointly issued Announcement [2025] No. 2, “Tax Credit Policy for Foreign Investors Using Distributed Profits to Make Direct Investments”.
For the period 1 Jan 2025 – 31 Dec 2028, any foreign investor that re-invests profits distributed by a Chinese resident enterprise may credit 10 % of the investment amount against its current-year Chinese tax liability. Any unused credit can be carried forward indefinitely.
The Ministry of Finance, the State Taxation Administration and the Ministry of Commerce jointly issued Announcement [2025] No. 2, “Tax Credit Policy for Foreign Investors Using Distributed Profits to Make Direct Investments”.
For the period 1 Jan 2025 – 31 Dec 2028, any foreign investor that re-invests profits distributed by a Chinese resident enterprise may credit 10 % of the investment amount against its current-year Chinese tax liability. Any unused credit can be carried forward indefinitely.
Important: China already grants a tax-deferral regime (profits re-invested are temporarily exempt from enterprise-income tax). The SAT has confirmed that the new credit policy does not affect the deferral rules; investors may enjoy both benefits simultaneously where they qualify.
II. Who Qualifies? Four Main Conditions
All of the following must be met:
All of the following must be met:
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Investor identity: non-Chinese resident enterprise (individuals and foreign institutions included).
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Profit source: dividends or bonuses actually distributed by a Chinese resident enterprise and drawn from retained earnings.
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Investment field: the target company must operate in sectors listed in the “Catalogue of Industries Encouraged for Foreign Investment” (advanced manufacturing, new energy, bio-pharma, etc.).
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Holding period: the re-invested portion must be held continuously for at least five years; early withdrawal triggers full claw-back.
Note：Investments in non-encouraged sectors, related-party equity or listed-tradable shares are excluded.
III. Which Investment Forms Qualify?
Only direct equity investments:
Only direct equity investments:
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Increase of registered capital
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Establishment of a new resident enterprise
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Acquisition of equity from an unrelated party
IV. Three-Step Operation
Step 1 – Investment filing (Commerce authorities)
The investee files the “Profit Re-investment Form” through the unified MOFCOM platform.
The investee files the “Profit Re-investment Form” through the unified MOFCOM platform.
Step 2 – Tax reporting (Tax authorities)
File the “Foreign Investor Re-investment Tax Credit Information Report”.
File the “Foreign Investor Re-investment Tax Credit Information Report”.
Step 3 – Use the credit
The credit is first applied against withholding tax on dividends, interest or royalties.
The credit is first applied against withholding tax on dividends, interest or royalties.
V. Real Example
In August 2025 US company A receives RMB 10 million in dividends from its wholly-owned Shanghai subsidiary B. A increases B’s capital by the same amount and obtains a RMB 1 million tax credit.
In October 2025 B pays A a RMB 8 million royalty, triggering RMB 0.8 million withholding tax. Company A uses the credit and wipes out the entire RMB 0.8 million liability—an outright saving of RMB 0.8 million.
In August 2025 US company A receives RMB 10 million in dividends from its wholly-owned Shanghai subsidiary B. A increases B’s capital by the same amount and obtains a RMB 1 million tax credit.
In October 2025 B pays A a RMB 8 million royalty, triggering RMB 0.8 million withholding tax. Company A uses the credit and wipes out the entire RMB 0.8 million liability—an outright saving of RMB 0.8 million.
VI. Three Risk Alerts
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Illegal cash routing: the dividend must move directly from the distributing company to the investee’s account—no third-party detours.
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Early-exit penalty: sell the equity before five years and you must repay the credit plus a 0.05 % per-day late-payment surcharge.
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Catalogue updates: the Encouraged Industries list is adjusted from time to time—always check the latest version before investing.
VII. Expert Advice: Seize the Policy Window
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Compliance first: check with commerce and tax authorities in advance to synchronise cash flow, filing and reporting.
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Retroactive benefit: investments made between 1 Jan 2025 and the policy release date can still claim the credit retrospectively.
Bottom line: re-invest your China profits—whether to expand existing operations or enter new tracks—and save up to 10 % in cash. The policy expires on 31 Dec 2028; the earlier you invest, the sooner you save.