Other BriefingsChina Monthly Tax Brief: June 2025
In this China Monthly Tax Brief for June 2025, we highlight key taxation developments relevant to businesses. Among others:
- China introduced a new tax credit incentive to encourage overseas investors to reinvest their profits earned in the country.
- Clarifications were issued on the financial treatment of certain items under the newly implemented Company Law.
- The individual income tax (IIT) subsidy program for foreign talents in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) was officially launched in Shenzhen on June 1, 2025.
- Platform enterprises now face new reporting obligations and updated rules for tax declarations.
- In addition, companies may apply a super pre-tax deduction for their first-half R&D expenses during the July tax filing period.
Tax credit incentive for reinvested profits by foreign investors
To promote long-term foreign investment in China, the Ministry of Finance (MOF), State Taxation Administration (STA), and Ministry of Commerce (MOFCOM) jointly issued Announcement No. 2 of 2025, introducing a tax credit policy for foreign investors who reinvest profits earned from Chinese enterprises.
Effective from January 1, 2025 through December 31, 2028, the policy allows eligible foreign investors to claim tax credits when profits distributed by domestic enterprises are reinvested into encouraged projects or enterprises within China. Transactions that occurred on or after January 1, 2025 may qualify for retroactive application of the incentive.
This measure aligns with broader efforts to enhance the business environment and support the reinvestment of earnings into China’s real economy.
| Category | Description |
| Tax credit incentive |
|
| Eligibility conditions |
|
| Compliance and administration |
|
| Early withdrawal |
|
Implications for businesses
The new tax credit policy for reinvested profits offers significant planning opportunities for foreign investors operating in China:
- Reduced tax burden and improved capital efficiency: Qualified reinvestments can lower overall tax liability by allowing foreign investors to offset corporate income tax, thereby improving the effective use of retained earnings.
- Stronger incentives for long-term investment: The requirement to hold reinvested equity for at least five years encourages stable, strategic investment planning and supports foreign companies in strengthening their onshore footprint.
- Compliance with fund flow and approval procedures is critical: To enjoy the tax benefit, companies must ensure that the distribution of profits and reinvestment paths are in strict compliance with regulatory requirements. The use of intermediary accounts or improper transfers may disqualify the reinvestment.
- Industry planning is essential: Only reinvestments into businesses listed in the Encouraged Catalogue qualify for the incentive. Enterprises should evaluate whether their reinvestment targets fall within these encouraged sectors.
- Retroactive application provides short-term opportunities: The policy applies retroactively to eligible reinvestments made on or after January 1, 2025. Enterprises that have already reinvested profits this year should assess their eligibility and consider filing for the tax credit.
Businesses should work closely with tax and legal advisors to assess the potential benefits, ensure procedural compliance, and take timely actions to maximize the available incentives under this new framework.
READ MORE: China Grants 10% Tax Credit for Overseas Investors Reinvesting Profits
Financial reporting issues clarified for the implementation of the new Company Law
On June 9, 2025, the Ministry of Finance issued Cai Zi [2025] No. 101, providing guidance on financial treatment issues arising from the implementation of the revised Company Law (effective July 1, 2024) and the Foreign Investment Law (effective January 1, 2020). The notice addresses several key areas that foreign-invested and domestic companies must update in their accounting and compliance practices.
Key financial treatment issues clarified include:
| Topic | Key Aspects | Description |
| Use of capital and surplus reserves to offset losses | Loss coverage order and limits | Companies may offset accumulated losses using audited financial statements from 2024 onward. The offset must follow this order: discretionary surplus reserves, statutory surplus reserves, and then eligible capital reserves. |
| Capital reserve limits | Only capital reserves generated through specific equity transactions (e.g., capital contributions via cash, assets, debt forgiveness, or donations) may be used. Reserves with restricted use (e.g., exclusive to certain shareholders) require consent to be applied. | |
| Corporate governance procedure | A loss recovery plan must be developed, reviewed by the board of directors, and approved by the shareholders’ meeting. Without shareholder approval, reserves cannot be used to offset losses. | |
| Disclosure and creditor notification | A loss recovery plan must be developed, reviewed by the board of directors, and approved by the shareholders’ meeting. Without shareholder approval, reserves cannot be used to offset losses. | |
| Retroactive compliance | Any reserve-based loss coverage conducted after July 1, 2024 must be reviewed for alignment with the new rules and adjusted if necessary. | |
| Valuation of non-monetary capital contributions | Asset appraisal requirement | When accepting capital contributions in the form of physical goods, IP, equity, or other non-cash assets, companies must conduct an asset appraisal in accordance with Cai Qi [2009] No. 46. |
| Legal risk assessment | Evaluate legal risks affecting contributed assets. Obtain a legal opinion if asset ownership or enforceability is uncertain. | |
| Treatment of legacy reserve and welfare funds in foreign invested enterprises (FIEs) | Fund reclassification | FIEs that adopt the organizational form, structure, and operational rules governed by the Company Law shall allocate statutory surplus reserves and discretionary surplus reserves. Remaining balances in reserve funds shall be reclassified and managed as statutory surplus reserves, while remaining balances in enterprise development funds shall be reclassified and managed as discretionary surplus reserves. FIEs that are not structured as companies may refer to this treatment for implementation. |
| Employee benefit fund usage | Employee reward and welfare funds in FIEs shall be used according to the purposes, conditions, and procedures defined at the time of allocation. During liquidation, unless such funds must be managed as liabilities under Cai Qi [2006] No. 67, they shall be handled in accordance Cai Gong Zi [1995] No. 222. | |
| Discontinuation of fund accruals | From January 1, 2025 onward, FIEs shall cease the accrual of reserve funds, enterprise development funds, and employee reward and welfare funds. Any such accruals made after January 1, 2025 must be reversed. |
This notice clarifies transitional treatment of reserves and capital injections and brings financial reporting practices in line with the updated corporate governance framework. Enterprises, particularly those with foreign investments, are advised to review their accounting policies, board procedures, and shareholder disclosures to ensure compliance.
2025 GBA IIT subsidy kick-started in Shenzhen
Foreign professionals working in Shenzhen may once again benefit from a generous tax incentive under the GBA IIT Subsidy. The Shenzhen government has released detailed guidelines for applying for the IIT subsidy for the 2024 tax year, with the application window running from June 1 to July 31, 2025.
This subsidy allows eligible overseas high-end and in-demand talent to receive a financial rebate for the portion of their IIT exceeding 15 percent of their taxable income. With a maximum annual subsidy of RMB 5 million (US$690,000) and the amount exempt from further IIT, this is one of the most attractive tax benefits available to expat professionals in China.
To be eligible for the GBA IIT subsidy application in Shenzhen, individual taxpayers must fulfill all the conditions related to their identity, employment, qualifications, tax payment, and ethical integrity.
For individual taxpayers whose income in Shenzhen includes wages and salaries, the GBA IIT subsidy application has to be made through the employer. Nevertheless, if the applicant only has income from personal services in Shenzhen, then they can apply for the subsidy directly without involving the employer.
When applying for subsidies, honesty really matters. The process runs on a credit-based system, which means you’re making a commitment that the information you provide is true and complete. Both you and your organization are responsible for making sure everything you submit is accurate. The authorities can review your application even after it’s been approved, and they may ask for supporting documents, so it’s important to be prepared and cooperative.
If any false information is found, whether it’s exaggerated details or a fraudulent claim, the consequences can be serious. You could lose eligibility for the subsidy, be required to pay back any funds you’ve received, and face penalties under national fiscal regulations. And if the issue involves potential criminal behavior, it could even be referred to the courts.
READ MORE: How Expats in Shenzhen Can Apply for the GBA IIT Subsidy in 2025?
New reporting requirements for internet platform enterprises
On June 20, 2025, the Administrative Measures for Tax-Related Information Reporting by Internet Platform Enterprises were officially issued and came into effect under State Council Decree No. 810. The new regulation establishes a formal system requiring internet platform enterprises to submit tax-related information concerning operators and workers active on their platforms to the competent tax authorities.
Covered entities include not only e-commerce platform operators but also other profit-oriented legal or unincorporated organizations that provide online business venues, transaction matching, or information publishing services in support of digital economic activities. This move reflects China’s broader efforts to strengthen tax oversight in the platform economy and promote fair taxation across all participants in the digital marketplace.
| Internet Platform Tax Information Reporting Obligations | |
| Category | Description |
| Scope of information reporting | Required reporting includes:
Exemptions:
|
| Requirement on data quality |
|
| Tax audit cooperation |
|
| Incompliance |
|
| Penalties |
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| No retrospective implementation |
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| Obligation of the overseas platform |
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| Security and confidentiality |
|
To support the rollout of the new reporting regime, the STA released STA Announcement [2025] No. 15, which provides detailed implementation rules. The announcement specifies reporting obligations, technical requirements, and compliance timelines applicable to a wide range of digital platforms.
| Key Implementation Details of Internet Platform Tax Information Reporting | |
| Category | Details |
| Covered platform types and reporting entities | Applies to eight categories of platforms, including:
Domestic platforms: Reporting is the responsibility of entities holding a value-added telecommunications business license. Foreign platforms: Must report through a domestic operating entity or designated local agent. |
| Reporting content and procedures | Platforms must submit:
Live streaming platforms must additionally report the affiliation between streamers and service agencies. |
| Timeline and submission method | For platforms operating before the rules take effect:
Corrections must be submitted within 30 days of discovering errors. Final report due within 30 days of terminating operations. |
| Enforcement and credit impact |
|
Implications for businesses
The implementation rules set high expectations for digital tax governance. Enterprises should proactively assess and prepare for the new compliance requirements:
- Integrate tax compliance into business operations: Design transaction flows and settlement models with reporting obligations in mind to minimize future correction costs.
- Invest in IT system upgrades: Automate data collection and aggregation to ensure reporting accuracy and timeliness.
- Build internal tax teams or engage qualified service providers: Establish dedicated tax reporting functions or partner with third-party advisors for compliance support.
- Ensure “three-stream consistency”: Align transaction flow, cash flow, and invoice flow to withstand future audits.
- Prepare for the first quarterly submission in October 2025: Complete system testing and data validation by late September. Prioritize historical data cleaning, interface development, and staff training.
These actions are essential not only for regulatory compliance but also for safeguarding platform reputation and business continuity in China’s increasingly regulated digital economy.
New rules for tax declaration on behalf of platform workers
On June 26, 2025, the STA issued the STA Announcement [2025] No. 16, introducing detailed procedures for internet platform enterprises handling individual income tax (IIT) withholding and value-added tax (VAT) proxy filing on behalf of their platform-based workers. Taking effect from October 1, 2025, the new rules aim to streamline reporting, clarify applicable tax policies, and reduce compliance burdens for individual workers.
| Category | Key Points |
| Individual income tax (IIT) declaration | Scope of application: Platform enterprises must withhold and prepay IIT for workers providing labor services (e.g., live streaming, tutoring, medical care, delivery, consulting, etc.).
Withholding formula: Tax payable = [Cumulative income − (Cumulative income × 20%) − Exempt income − Basic deduction (RMB 5,000/month) − Other deductions] × Tax rate − Quick deduction − Tax relief − Previously prepaid tax Execution: Follows the cumulative withholding method under 2018 Announcement No. 61. |
| VAT declaration | Exemption policy: Small-scale taxpayers with monthly revenue ≤ RMB 100,000 are exempt from VAT; otherwise, a reduced 1% rate applies (down from 3%).
Self-filing threshold: Workers with revenue > RMB 5 million in 12 consecutive months must register as a business and self-file VAT. Proxy filing:
|
| CIT deductibility | To deduct labor payments to workers from taxable income:
Risk warning: Labor costs may not be deductible without sufficient documentation verifying the authenticity of the service. |
Implications for businesses and compliance tips
- Lower IIT burden for workers through cumulative withholding: The shift from a flat 20–40 percent withholding rate on single transactions to a cumulative method allows workers to apply the RMB 5,000 monthly deduction and enjoy progressive rates (3–45 percent), reducing upfront tax pressure.
- Stricter VAT compliance and data segmentation: Platforms must accurately report revenue by source and platform. Refund errors within the same month can be corrected by the platform; errors from past periods require the worker to initiate correction.
- Refund handling must match original transactions: Where simplified tax calculation is applied, rebates or returns must be deducted from current taxable revenue. Excess tax from returns may be carried forward to offset future tax liabilities. Refunds must be traceable to original transactions.
- Enhanced data reporting and record-keeping obligations: Platforms should ensure the authenticity and completeness of original data. Previously reported information does not need to be duplicated. Also, a platform enterprise should keep a record of real-name verifications, transaction logs, settlement documents, and tax filing history.
Adjustments to processing trade and customs-supervised zones management measures
The General Administration of Customs and five other government departments jointly issued Announcement [2025] No. 83, introducing updated regulatory measures for specific goods handled under customs special supervision zones, bonded supervision premises, and off-zone processing trade arrangements. The new rules took effect on June 10, 2025.
The adjustments apply to four categories of goods, namely:
- Goods under tariff quota administration (e.g., wheat, corn, rice – eight types in total);
- Goods subject to trade remedy measures, suspension of tariff concessions, additional tariffs, or retaliatory tariffs.
Key regulatory measures
- A dedicated account book must be established for importing the covered goods; such goods may not be bonded unless recorded in the special account book.
- Goods in the dedicated account book can circulate under bonded status but must not be transferred into ordinary account books.
- If covered goods are imported and non-covered goods are used during processing, the non-covered inputs must also be recorded in the dedicated account book; any unused non-covered goods may be transferred to an ordinary account book under bonded status.
- Processing scraps, defective products, and by-products under the special account book may not be sold domestically and must either be re-exported or destroyed.
- Entrusted processing within the bonded zone is prohibited under the special account book.
- For cross-border e-commerce, a separate account book system applies; covered goods may not be transferred into standard non-e-commerce account books.
- If imported materials are not covered goods but the final processed product is, the domestic sale will trigger taxation based on the finished product.
Goods recorded in account books prior to the new regulation will continue to be governed by the previous policy. The newly designated covered goods will not be adjusted retroactively.
Policy implications
Enterprises involved in processing trade and bonded operations are advised to promptly review product classifications and account book structures. Covered goods should be clearly identified and managed under the new dedicated account system to ensure a compliant and smooth transition.
Other tax updates
Super deductions of R&D expenses for H1 can be applied in the July tax filing period
Under current regulations, companies may apply for the R&D expense super deduction policy during the July and October filing periods, as well as during the annual CIT reconciliation (settlement). When prepaying CIT for H1 2025 (for quarterly prepayments) or in June (for monthly prepayments), companies have the option to apply the super deduction policy for R&D expenses incurred in the first half of the year. This decision should be based on their profit and loss situation, R&D expense accounting, and the total amount of R&D expenses.
READ MORE: China Tax Filing: Apply for Super Deductions of R&D Expenses for H1 2025 in July
Implementation details issued for advanced manufacturing VAT super deduction policy
On May 2025, the Ministry of Industry and Information Technology, MOF, and STA jointly released a notice clarifying the eligibility and application procedures for the VAT super deduction policy for advanced manufacturing enterprises in 2025. The policy supports technological innovation and manufacturing development, targeting general VAT taxpayers recognized as high-tech enterprises whose manufacturing business accounts for over 50 percent of total sales and who meet R&D investment thresholds. Applicants must have a clean tax compliance record.
Application process:
– Enterprises must apply via the High and New Technology Enterprise Certification Management System;
– Enterprises already on the 2024 list may submit renewal applications between the 1st and 10th of each month starting June 2025;
– New applicants may apply during the same window beginning in September 2025, with a final deadline of April 10, 2026.
Policy period: Valid until the end of the enterprise’s high-tech qualification, up to April 30, 2026.
Filing structure: Parent companies must apply on behalf of their branches, but both must independently meet the manufacturing criteria.
Enterprises are advised to review their qualification status, prepare timely submissions, and ensure internal compliance to maximize policy benefits and minimize risks.
New enforcement forms for tax-related professional services inspections
To implement the Administrative Measures on Tax-related Professional Services (Trial), the STA issued an announcement on June 6, 2025, introducing standardized enforcement document templates for inspections and penalties related to tax service providers. The forms aim to unify enforcement practices and align with current regulations.
The eight standardized documents are categorized into:
- Inspection forms: Notice of tax matters, notice of tax inspection, inquiry notice, and interview/investigation records; and
- Penalty forms: Rectification order, notice of proposed tax administrative penalty, and two formats of penalty decision letters (simplified and standard).
These documents provide a legal framework for supervising and penalizing non-compliant behavior among tax professionals.
READ MORE: Selecting Compliant Providers: Understanding China’s 2025 Tax Service Regulations
Enhanced tax scrutiny on the medical procurement sector
In 2025, tax authorities are intensifying regulatory oversight over the healthcare procurement sector, focusing on full-chain, transparent monitoring. Key inspection areas include:
- Verifying invoice authenticity and business legitimacy in drug, high-value consumable, and equipment procurement;
- Detecting issuance or acceptance of fraudulent invoices;
- Strengthening “four-flow comparison” (invoice, capital, logistics, and contract consistency) through inter-departmental data sharing;
- Cross-checking declared revenue with public medical insurance procurement prices to detect inflated costs or hidden income;
- Leveraging digital tools such as electronic invoicing and traceability codes to enhance compliance enforcement; and
- Applying a blacklist system for violators and enforcing joint penalties to raise the cost of non-compliance.
Healthcare companies are encouraged to review procurement practices, validate documentation, and ensure strict alignment with tax and compliance obligations.
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