Announcement on Issues Relevant to Expanding the Scope of Application of the Policy of Provisional Deferral of Withholding Income Tax on Direct Investments Made by Foreign Investors Using Distributed Profits

2 . If a foreign investor, in accordance with the provisions of the competent finance authority, transfers reinvestment capital through a dedicated renminbi reinvestment deposit account and, on the day that the relevant amount is transferred from the profit distributing enterprise's account into the foreign investor's dedicated renminbi reinvestment deposit account, the same is further transferred from the foreign investor's dedicated renminbi reinvestment deposit account into the account of the investee enterprise or equity transferor, the same shall be deemed to comply with the provision that, “if the profit used by the foreign investor for direct investment is paid in the form of cash, the relevant amount shall be transferred from the account of the profit distributing enterprise directly into the investee enterprise's or equity transferor's account, and may not pass through other accounts inside or outside China before direct investment”.

3 . Where back tax is paid in accordance with Article 4 or 6 of the Circular, the foreign investor may be eligible for the treatment available under a tax agreement in accordance with relevant provisions, but may only apply a tax agreement in effect at the time of payment of the relevant profit.  If otherwise provided in a subsequent tax agreement, matters shall be handled in accordance with such subsequent agreement.

4 . When a foreign investor is eligible for the Policy in accordance with Article 3 of the Circular, it shall complete a Form for the Report on Information Pertaining to the Deferred Payment of Withholding Income Tax of Non-tax-resident Enterprises (Attachment) and submit the same to the profit distributing enterprise.

When a foreign investor retroactively applies to benefit from the Policy as provided for in Article 5 of the Circular, it shall provide to the competent tax authority of the profit distributing enterprise a Form for the Report on Information Pertaining to the Deferred Payment of Withholding Income Tax of Non-tax-resident Enterprises and the relevant contracts, payment receipts and other documentation required from the application for a tax rebate.

When a foreign investor pays back tax in accordance with Article 4 or 6 of the Circular, it shall complete a Form of the People's Republic of China for the Report of the Withholding of Enterprise Income Tax and submit the same to the competent tax authority of the profit distributing enterprise.

5 . A profit distributing enterprise shall review, pursuant to Article 3 of the Circular, the documentation and information submitted by a foreign investor and implement the Policy after confirming the following results:

(1) the information provided by the foreign investor is complete and without omissions;

(2) the actual process of paying the profit is consistent with the information provided by the foreign investor; and

(3) the information concerning the profit distributing enterprise in the information provided by the foreign investor is true and accurate.

6 . A profit distributing enterprise that is implementing the Policy in accordance with Article 3 of the Circular shall submit the following documentation to the competent tax authority within seven days from the date on which the profit was actually paid:

(1) a Form of the People's Republic of China for the Report of the Withholding of Enterprise Income Tax completed by it; and

(2) a Form for the Report on Information Pertaining to the Deferred Payment of Withholding Income Tax of Non-tax-resident Enterprises submitted by the foreign investor and on which the missing information has been provided by the profit distributing enterprise.

Within 10 working days after receipt of the Form for the Report on Information Pertaining to the Deferred Payment of Withholding Income Tax of Non-tax-resident Enterprises, the competent tax authority of the profit distributing enterprise shall send a Communication Letter on Tax Matters of a Non-tax-resident Enterprise, forwarding relevant information, to the competent tax authority of the investee enterprise as specified in Item (1) of Article 2 of the Circular (the Investee Enterprise), or other relevant tax authority.

7 . If the competent tax authority of the Investee Enterprise, or other relevant tax authority, discovers either of the circumstances specified below, it shall report the same to the competent tax authority of the profit distributing enterprise by means of a Communication Letter on Tax Matters of a Non-tax-resident Enterprise within five working days:

(1) facts or information to the effect that the Investee Enterprise does not satisfy the conditions for eligibility for the Policy; or

(2) facts or information to the effect that the foreign investor has disposed of the investment that was benefiting from the Policy.

8 . The competent tax authority may, in the course of tax administration, require, in accordance with the law, a foreign investor, the profit distributing enterprise, Investee Enterprise, equity transferor or other such relevant entity or individual to provide documentation and information on the eligibility of the foreign investor for the Policy within a specified period of time.

9 . If a profit distributing enterprise fails to review and confirm the documentation and information submitted by the foreign investor in accordance with Article 5 hereof, resulting in a foreign investor that is ineligible for the Policy actually benefiting from the Policy, the competent tax authority of the profit distributing enterprise shall pursue in accordance with relevant provisions the liability of the profit distributing enterprise for failure to withhold withholdable taxes and recover the payable taxes from the foreign investor in accordance with the law.

10 . If a foreign investor provides information that is erroneous, resulting in its actually benefiting from the Policy where it ought not to have so benefited, the competent tax authority of the profit distributing enterprise shall handle the same in accordance with Article 4 of the Circular.

11 . If a foreign investor partially disposes of its investment in a tax-resident enterprise in China that includes both an investment in respect of which it is benefiting from the Policy and an investment in respect of which it has not benefited from the Policy, it shall be deemed to first be disposing of the investment in respect of which it is benefiting from the Policy.

If a foreign investor fails to retroactively pay the deferred tax in accordance with Article 6 of the Circular, the competent tax authority of the profit distributing enterprise shall pursue its liability for late payment of taxes, which payment delay shall count from the eighth day after actual receipt of the relevant amount.

12 . A foreign investor or profit distributing enterprise may engage an agent to handle relevant matters specified herein, provided that it furnishes to the competent tax authority written proof of such engagement.

13 . This Announcement shall be effective as of January 1, 2018. The State Administration of Taxation, Announcement on Issues Relevant to the Implementation of the Policy of Provisional Deferral of Withholding Income Tax on Direct Investments Made by Foreign Investors Using Distributed Profits (SAT Announcement [2018] No.3) shall be repealed simultaneously.