Learn Chinese - Circular on Relevant Issues concerning Refund of Enterprise Income Tax to

Foreign Investors for Reinvestments

BIZCHINA / Taxation

Circular on Relevant Issues concerning Refund of Enterprise Income Tax
to Foreign Investors for Reinvestments

Updated: 2006-04-18 10:32

Guo Shui Han [2005] No. 1093

The bureaus of state taxes of all provinces, autonomous regions,
municipalities directly under the Central Government, and cities
specifically designated in the state plan, Shenzhen Municipal Bureau of
Local Taxes:

We are informed that some foreign-funded enterprises distribute the
profits of the year prior to the transfer of their equities to the
transferee foreign investors after the transfer. We hereby give our
notice as follows regarding the issue on the refund of enterprise income
tax to the foreign investors for reinvestments with the profits gained
prior to the transfer of equities:

I. Where a foreign investor that gains the equities of a foreign-funded
enterprise by means of transfer makes reinvestment in China after the
transfer with the profit distributed by the foreign-funded enterprise
prior to the transfer, the profits for such reinvestment does not fall
into the scope of the profits used for direct reinvestments as prescribed
in Article 80 of the ��Detailed Rules for the Implementation of the Law
of the People��s Republic of China on the Income Tax of Foreign-funded
Enterprises and Foreign Enterprise��, and the foreign investor may not
enjoy the relevant tax refund treatment for reinvestment with profits.

II. Where equities are transferred at the cost price to a foreign
investor from any of the following associated parties with whom it has a
direct or indirect ownership relationship or whose equities are 100%
owned by an identical party, , and the said foreign investor makes a
reinvestment in China after the transfer with the profits distributed by
the foreign-funded enterprise prior to the transfer, it will not be
restricted by the above Article 1, and may enjoy the tax refund treatment
for reinvestment with profits according to the relevant provisions.

(1) Foreign investors;

(2) Foreign-funded enterprises specializing in investment business, which
may be deemed as foreign investors under the ��Circular of the Ministry
of Finance and the State Administration of Taxation on Some Taxation
Issues for Foreign-funded Enterprises to Engage in the Investment
Business�� (Cai Shui Zi [1994]No. 083) to enjoy tax refund treatment for
reinvestment.

III. This Circular shall go into effect as of the date of promulgation.
With regard to those who have enjoyed tax refund treatment for
reinvestment prior to the said date, the tax refund will not be adjusted
according to this Circular.

State Administration of Taxation
November 17, 2005

Promulgated by the State Administration of Taxation on 2005-11-17

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