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The Administration of State Taxation
Circular of the State Administration of Taxation on Relevant Issues Concerning the Tax Refund for Reinvestments of Foreign Investors
GuoShuiFa [2001] No.86
July 30, 2001
The State Taxation bureaus of all provinces, autonomous regions, municipalitie directly under the Central Government and municipalities
separately listed on the State plan, the local taxation bureau of Shenzhen city:
The taxation bureaus of some regions recently inquired about whether the foreign party to an enterprise with foreign investment may,
in accordance with Article 10 of the Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and
Foreign Enterprises (hereinafter referred to as the Tax Law) and other relevant provisions, enjoy the preferential treatment of tax
refund for reinvestments if it uses the increased after-tax profits obtained from tax audit on the transactions between its associated
enterprises to reinvest within the territory of China. It is hereby clarified as follows in accordance with Article 10 of the Tax
Law and Article 80 of the Detailed Rules for the Implementation of the Tax Law:
Where any foreign investor has, prior to the profit distribution and through transactions between its associated enterprises, actually
transferred the profits out of the enterprise with foreign investment by which the profits were made, the foreign investor shall
not enjoy the relevant preferential treatment on the tax refund for reinvestments in accordance with the provisions in Article 80
of the Detailed Rules for the Implementation of the Tax Law regarding “Reinvesting its share of profit directly as mentioned in
Article 10 of the Tax Law refers to that profits earned by a foreign investor before being drawn from an enterprise with foreign
investment shall be used directly to increase the registered capital, or to make direct capital investment in another enterprise
with investment after such profits are appropriated”, it shall not be counted as “reinvesting its share of profit directly” provided
in Article 10 of the Tax Law or Article 80 of the Detailed Rules for the Implementation of the Tax Law no matter whether the foreign
investor returns the transferred profits or by any means reinvests them within the territory of China.
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