China Offers Tax Break to Foreign Companies

Foreign companies will be temporarily exempted from paying withholding tax (WHT) in China on profits that they reinvest in the country, as long as these re-investments meet certain conditions.


The tax break was announced on December 28th 2017, but it is retroactive from the beginning of 2017, meaning foreign companies who are eligible for the tax exemption will be refunded.


Who pays WHT in China?
This tax is levied on non-resident foreign companies whenever they receive China-derived passive income, e.g. when obtaining dividends from their China subsidiary. China’s WHT rate on these transactions is usually 10 percent.


Who is eligible for the tax exemption?
Foreign companies must meet certain conditions in order for their WHT to be waived, including the following:

  • The reinvested earnings must go into government encouraged sectors
  • The reinvestment must be transferred directly into the recipient company



Why is China waiving withholding tax?
The move is designed to attract and retain foreign capital in China. China’s rising labour costs and slowing economic growth have been weighing on its ability to attract FDI. Now that the US is set to cut corporate taxes, the pressure is even higher. Foreign companies can expect China to continue trimming taxes and administrative burdens in 2018.


Do your activities qualify you for this tax exemption? How can you claim a tax refund on your 2017 reinvestments? Do you qualify for other tax breaks, such as the High-Tech Status? Our Tax Advisors will be happy to answer your questions and guide you through the application process.