Chinese State Administration of Taxation (SAT) issued a circular (Circular Cai Shui  No. 102) on 29 September 2018. This circular is retroactively applicable to dividends, bonuses and other equity investment gains received by foreign investors on or after 1 January 2018 and the Circular Cai Shui  No. 88 is simultaneously abolished.
The circular clarifies the tax deferral regime for withholding tax on dividends and distributed profits reinvested into directive investment. The application scope of this tax incentive is extended from the foreign investment projects under the encouraged category to all non-prohibited foreign investment projects and fields.
To enjoy the deferral of withholding tax, foreign investors must meet all the following conditions:
The “foreign investors” are the non-resident enterprises that are subject to the provisions of Article 3, paragraph 3 of the Chinese Enterprise Income Tax Law. The term “Chinese domestic resident enterprises” as used in this circular refers to the resident enterprises established under the laws of China.
If a foreign investor who is entitled to this tax incentive but has not actually enjoyed it, it may apply for the recovery and enjoy the policy within 3 years from the date of actual payment of the relevant tax, and refund the paid tax.
Foreign investors who have enjoyed such tax deferral and actually recover the direct investment through equity transfer, repurchase, liquidation, etc., shall report the deferred tax to the tax authority within 7 days after the actual collection of the corresponding amount according to the prescribed procedures.
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