China Withholding Tax Deferral Policy for Foreign Direct Reinvestment
Dividends derived from China by a foreign investor are currently subject to China Enterprise Income Tax in the form of Withholding Tax at 10%. In order to attract foreign capital flow into China, a preferential tax deferral policy has recently been implemented by the Chinese government. Under this policy, if foreign investors directly reinvest their profits distributed by Chinese resident enterprises in the encouraged industries and meet certain criteria, then the 10% Withholding Tax on the distributed profits (i.e. dividends) shall not be levied, until the foreign investors dispose of such reinvestments in China. The preferential tax deferral policy took retroactive effect from 1 January 2017. That is, dividends received by foreign investors on or after 1 January 2017 may be eligible for the tax deferral treatment and a refund for the Withholding Tax already paid could be applied.
Certain changes on China withholding tax obligations for non-residents
Passive incomes such as dividends, interests, royalties, capital gains derived from China by a non-Chinese tax resident enterprise (“NRE”) are generally subject to China enterprise income tax in the form of withholding tax. Effective from 1 December 2017, the following changes should be noted: