China said Sunday that it has expanded a preferential policy to temporarily exempt certain profits obtained by overseas investors from withholding income tax in order to encourage inbound investment.
China has previously deferred withholding income tax on profits that were distributed to overseas investors by resident enterprises in the country and directly reinvested in encouraged investment projects.
Now the scope of the exemption has been expanded to all foreign investment projects other than prohibited ones, according to a policy document released by the Ministry of Finance and three other government departments.
The profits distributed to overseas investors refer to equity investment returns, including dividends and corporate bonuses, according to the document. The reinvestment of the profits does not include purchases of listed companies' shares, except qualified strategic investment.
The exemption is effective from Jan. 1, 2018, meaning taxes already paid this year will be refunded.
China has taken a slew of measures to create a better business environment for foreign investors. The country will make more efforts to encourage foreign investment, with faster approval procedures and better intellectual property protection, according to a statement released after a State Council executive meeting earlier this month.
In the first eight months of the year, the number of new overseas-funded companies established in China more than doubled from a year earlier to 41,331, according to the Ministry of Commerce.
During the period, foreign direct investment into the Chinese mainland in dollar terms grew 6.1 percent year-on-year to 86.5 billion U.S. dollars.
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