In order to implement the decisions and arrangements of the Central Committee of the Communist Party of China and the State Council, and further encourage foreign investors to invest in China, the Ministry of Finance, the State Administration of Taxation, the National Development and Reform Commission, and the Ministry of Commerce jointly issued the "Notice on Expanding the Scope of Application of the Policy of Not Levying Withholding Income Tax for Foreign Investors' Direct Investment with Profit Distribution" (Caishui [2018] No. 102), hereinafter referred to as the "Notice". The State Administration of Taxation issued the "Announcement on Relevant Issues Concerning Expanding the Scope of Application of the Policy of Not Levying Withholding Income Tax for Foreign Investors' Direct Investment with Profit Distribution" (State Administration of Taxation Announcement No. 53 of 2018), which stipulates the scope of application of the policy of not levying withholding income tax for foreign investors' profits distributed from resident enterprises in China for domestic direct investment, Expand from encouraged foreign investment projects to all non prohibited foreign investment projects and fields.

What conditions do overseas investors need to meet to enjoy the policy of temporarily exempting withholding income tax?

1. Newly added or converted paid in capital or capital reserves of resident enterprises within China;

3. Acquiring equity of resident enterprises in China from non related parties;

The enterprises invested by overseas investors through the above-mentioned investment behaviors are collectively referred to as the invested enterprises.

（3） If the profits used by overseas investors for direct investment are paid in cash, the relevant funds shall be directly transferred from the account of the profit distribution enterprise to the account of the invested enterprise or equity transferor, and shall not be circulated in other accounts at home and abroad before direct investment; If the profits used by overseas investors for direct investment are paid in non cash forms such as physical goods or securities, the ownership of the relevant assets shall be directly transferred from the profit distribution enterprise to the invested enterprise or equity transferor, and shall not be held by other enterprises or individuals on behalf of or temporarily held before direct investment.

（1） When overseas investors apply to enjoy the temporary non taxation policy according to regulations, they shall fill out the "Non resident Enterprise Deferred Payment of Prepaid Income Tax Information Report Form" and submit it to the profit distribution enterprise.

How do overseas investment enterprises operate profit distribution when applying for the temporary exemption from withholding income tax policy?

（2） Within 7 days from the actual payment of profits, submit the "People's Republic of China Withholding Enterprise Income Tax Report Form" filled out by the profit distribution enterprise to the competent tax authority; The Non Resident Enterprise Deferred Payment of Prepaid Income Tax Information Report Form submitted by overseas investors and supplemented by profit distribution enterprises.

Overseas investors who use the profits they receive to make up for the registered capital already subscribed by their domestic resident enterprises, increase their paid in capital or capital reserves, belong to the situation stipulated in Article 2 (1) of the notice as "adding or converting paid in capital or capital reserves of Chinese domestic resident enterprises". Anyone who meets other conditions stipulated in the notice can enjoy the policy of temporary exemption from taxation and provision of income tax in accordance with the regulations.

Overseas investors who transfer reinvestment funds through the RMB reinvestment special deposit account in accordance with the regulations of the financial regulatory authorities, and transfer the relevant funds from the profit distribution enterprise account to the RMB reinvestment special deposit account of overseas investors on the same day, and then transfer them from the RMB reinvestment special deposit account of overseas investors to the invested enterprise or equity transferor account, shall be deemed to comply with the provisions of Article 2 (3) of the notice, which stipulates that "if the profits used by overseas investors for direct investment are paid in cash, the relevant funds shall be directly transferred from the profit distribution enterprise's account to the invested enterprise or equity transferor's account, and shall not be circulated in other accounts at home and abroad before direct investment". Anyone who meets other conditions stipulated in the notice can enjoy the policy of temporary exemption from taxation and provision of income tax in accordance with the regulations. The sentence is:.

After overseas investors enjoy the temporary non taxation policy, they can actually recover the direct investment that enjoys the temporary non taxation policy through equity transfer, repurchase, liquidation and other means. Within 7 days after receiving the corresponding amount, they shall apply to the tax department for supplementary payment of deferred taxes according to the prescribed procedures.

When overseas investors make up for tax payments, except as otherwise provided in subsequent tax treaties, the tax treaties in effect at the time of profit payment may still apply. Overseas investors who apply for tax treaty benefits shall comply with the provisions of the "Administrative Measures for Non Resident Taxpayers to Enjoy Treaty Benefits" (Announcement No. 35 of the State Administration of Taxation in 2019).

After overseas investors enjoy the policy of temporarily exempting from withholding income tax, if the invested enterprise undergoes restructuring that meets the special restructuring conditions and is actually subject to tax treatment according to the special restructuring, according to Article 7 of the notice, they can continue to enjoy the policy of temporarily exempting from withholding income tax and not pay deferred taxes.

Overseas investors who partially dispose of their holdings of the same Chinese resident enterprise investment, including those that have already enjoyed the temporary non taxation policy and those that have not, shall be deemed to have disposed of the investment that has already enjoyed the temporary non taxation policy first, and shall pay the tax in accordance with Article 6 of the notice.