State Administration of Taxation, Official Reply to Issues Relevant to Tax Rebates on Re-capitalization of Foreign investors

Issued: October 20 2005

Main contents: Where an application by a foreign investor intending to make use of the profits from a foreign-invested enterprise for re-capitalization is approved by relevant state departments, and where the profits used for re-capitalization have been realized, re-capitalization tax rebates may be granted in accordance with provisions when re-capitalization actually takes place regardless of whether it is a lump-sum investment, or investments in multiple installments (Item One). Where an application by a foreign investor intending to make use of the profits from a foreign-invested enterprise for re-capitalization is approved by relevant state departments, and where the profits used for re-capitalization have not been realized or are partially not realized but a commitment to use profits realized in the following financial years for re-capitalization is made, the said re-capitalization is deemed to be a supplement to the registered capital of the enterprise and is not 'an increase in registered capital or a capital investment for the establishment of another foreign-invested enterprise' as stated in the PRC Foreign-invested Enterprise and Foreign Enterprise Income Tax Law. When the said re-capitalization actually takes place, it shall not be entitled to any re-capitalization tax rebate treatment (Item Two).
Related legislation: PRC Foreign-invested Enterprise and Foreign Enterprise Income Tax Law, Apr 9 1991, CLP 1991 No.3 p.25