The Ministry of Finance, the State Administration of Taxation, and the Ministry of Commerce recently issued the "Announcement on the Tax Credit Policy for Overseas Investors' Direct Investment with Profit Distribution" (hereinafter referred to as the "Announcement"), which clarifies that overseas investors who use profits distributed by Chinese resident enterprises for domestic direct investment from January 1, 2025 to December 31, 2028, and meet the conditions, can deduct 10% of the investment amount from the overseas investor's taxable amount for the current year. If the current year is not enough to offset, it can be carried forward to the future. If the tax rate applicable to equity investment income such as dividends and bonuses in tax treaties between the government of the People's Republic of China and foreign governments is less than 10%, the agreed tax rate shall be implemented. According to the Announcement, if overseas investors use profits distributed by Chinese resident enterprises for direct investment in China, which meets the conditions, it refers to equity investment income such as dividends and bonuses formed by the retained earnings actually distributed by Chinese resident enterprises to investors, and meets multiple conditions at the same time. The domestic direct investment made by overseas investors with profit sharing includes equity investments such as capital increase, new construction, and equity acquisition made by overseas investors with profit sharing, but does not include newly added, converted, or acquired shares of listed companies (excluding eligible strategic investments). The Announcement requires that if overseas investors recover all or part of their direct investments that enjoy tax credit policies after investing for 5 years (60 months), the domestic resident enterprise corresponding to the recovered investment should declare the deferred tax payment to the local tax authority of the profit distribution enterprise within 7 days after the investment is recovered. The balance of reinvestment tax credit can be used to offset their taxable income. If overseas investors recover all or part of their direct investments that enjoy tax credit policies before investing for less than 5 years (60 months), the distribution of profits corresponding to the recovered investment by domestic resident enterprises shall be deemed to not meet the tax preferential conditions stipulated in the Announcement. In addition to paying deferred taxes as stipulated in the preceding paragraph, overseas investors shall also reduce the tax credit limit that they can enjoy proportionally. Overseas investors who enjoy the tax credit policy stipulated in the Announcement and still have a credit balance after December 31, 2028, can continue to enjoy it until the credit balance is zero. Foreign investors who make eligible investments between January 1, 2025 and the date of the announcement may apply for retroactive tax credit policies from the date of the announcement. (New Society)