(Yicai) July 1 -- Overseas investors who reinvest their China-earned profits back into the country will be eligible for a tax waiver equivalent to a maximum of 10 percent of the amount reinvested each year over the next three years, three Chinese government bodies, including the Ministry of Finance, said last night as part of broader efforts to attract and retain foreign investment.

From January this year to the end of 2028, international investors who use their share of profits from Chinese companies for direct reinvestment in the country can reduce the tax payable in the current year by 10 percent of the reinvestment amount, according to an announcement issued by the Ministry of Finance, the State Administration of Taxation and the Ministry of Commerce.

If the tax break is not fully used up in the same year, it can be carried forward to a later date. If the tax treaty rate is less than 10 percent, that rate will apply instead, they added.

To qualify, the reinvestment must fall within the Catalogue of Industries Encouraged for Foreign Investment and must be held for at least five consecutive years, they said. Acceptable types of reinvestment include equity investments such as capital increases, new investments and share purchases.

The new policy will help cut tax costs for foreign investors and improve the return on their investments, analysts said. This will make it more attractive for them to reinvest profits in China, particularly in high-tech and green energy sectors that are included in the government’s encouraged industries catalogue, analysts said.

The five-year holding requirement could change investor behavior by discouraging short-term, speculative capital flows and encouraging more stable, long-term foreign investment, analysts said.

China has been actively rolling out policies to encourage overseas investment since the beginning of the year. On Feb. 19, it released its "2025 Action Plan for Stabilizing Foreign Investment." The Ministry of Commerce said on June 25 that it will simplify the reporting process for international investments.

The number of new overseas-backed companies set up in China surged 10.4 percent in the first five months from a year earlier to 24,018 firms, according to data from the Ministry of Commerce. However, the actual amount of foreign capital used tumbled 13.2 percent to CNY358.1 billion (USD50 billion).

Editor: Kim Taylor