On 28 December 2017, The Ministry of Finance, State Administration of Taxation, National Development and Reform Commission and Ministry of Commerce jointly introduced Circular-Caishui 88 and relevant interpretations, which provide foreign investors with a withholding tax deferral incentive for profit reinvestments in China.
Circular 88 grants a temporary not imposing withholding tax vis-à -vis dividends foreign investors receive from their Chinese subsidiaries if they reinvest such dividends in China in projects which fall within the following Encouraged Category of China’s Catalogue for the Guidance of Foreign Investment Industries and its equivalent for China’ Midwestern Regions.
Encouraged industries are:
- water conservation;
- environmental protection;
- scientific research and technological services;
- lightweight and eco-friendly metals for aviation and auto industries;
- batteries for electric cars.
