The State Administration of Taxation ("SAT") has recently issued the Announcement on Matters Concerning Expanding the Applicable Scope of the Policy of Temporarily Not Levying Withholding Tax on Distributed Profits Used by Overseas Investors for Direct Investments (the "Announcement") which comes into force retrospectively from January 1, 2018.
The Announcement provides answers to some questions, including "whether the preferential policy of temporarily not levying withholding tax applies when an overseas investor uses profits it receives to make a supplementary payment for the portion of registered capital it has subscribed", "whether the preferential policy of temporarily not levying withholding tax applies when an overseas investor transfers, via its deposit account exclusively for RMB reinvestments, the profits used for investments" and "whether it is possible to apply for a tax refund to retrospectively enjoy this preferential tax policy, if reinvestment activities carried out with profits during the period between January 1, 2017 and January 1, 2018 satisfy requirements for provisionally not levying withholding tax, but the tax preference has not been enjoyed in fact". According to the Announcement, where the supplementary payment made by an overseas investor with profits it receives, for the portion of registered capital of a domestic resident enterprise it has subscribed, increases the amount of paid-in capital or capital reserves, this situation falls into the circumstances of "increasing or converting to increase the paid-in capital or capital reserves for a resident enterprise in China".