China Monthly Tax Brief: July 2025

In this China Monthly Tax Brief for July 2025, we highlight key taxation developments relevant to businesses. Among others:

• Seven key government agencies jointly issued measures to encourage domestic reinvestment by foreign-invested enterprises, building on earlier tax credit reforms;
• Hainan released new tax measures to support the island-wide customs closure on December 18, 2025, including two zero-tariff initiatives;
• The Shanghai tax bureau issued a tax incentive guide for international shipping;
• The MOF and STA jointly announced an optimized consumption tax policy for ultra-luxury passenger cars;
• The STA revised the corporate income tax prepayment filing form; and
• The central government announced a nationwide childcare subsidy program, with benefits exempt from individual income tax.

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STA released measures clarifying the implementation of the 10 percent credit for foreign reinvestment

On June 27, 2025, China’s Ministry of Finance (MOF), State Taxation Administration (STA), and Ministry of Commerce (MOFCOM) jointly issued MOF STA MOFCOM Announcement [2025] No. 2, introducing a preferential tax policy to encourage overseas investors to reinvest profits earned from Chinese resident enterprises back into the domestic market. Effective from January 1, 2025, to December 31, 2028, the policy allows eligible investors to claim a 10 percent tax credit on qualifying reinvestment amounts, with any unused credits carried forward until fully utilized.

To facilitate the implementation of MOF STA MOFCOM Announcement [2025] No. 2, the STA released, on July 31, 2025, the Announcement on Matters Related to the Tax Credit Policy for Foreign Investors’ Direct Reinvestment of Distributed Profits (STA Announcement [2025] No. 18) along with its official interpretation. This clarified common questions on how to access the 10 percent tax credit. Key points are summarized below:

Category	Details
Scope of application	Profits attributable to foreign investors used to make up subscribed capital, increase paid-in capital, or contribute to capital reserves are treated as qualifying reinvestment. The investment holding period is determined by the date specified in the “Profit Reinvestment Statement” issued by the commerce authority.
Tax credit rules	The creditable tax amount must meet all of the following: Corporate income tax payable on income from the same profit-distributing enterprise; Income type includes dividends, interest, or royalties; Income obtained after the reinvestment date; The credit may be calculated at 10 percent of the reinvestment amount or at a lower treaty rate; however, upon investment recovery, the lower treaty rate on dividends will not apply; Multiple reinvestments must be accounted for separately by distributing enterprise; Foreign currency investments are converted into RMB at the central parity rate on the payment date to calculate deferred income tax and the credit amount.
Investment recovery	The holding period ends in the month of registration for capital change/withdrawal, or the month of asset/consideration receipt if earlier; Recovery order: enjoyed credit; eligible but unused; and under deferral but ineligible; For multiple investments in the same enterprise, recover in order of reinvestment date.
Filing requirements	To claim credit: “Foreign Investor Reinvestment Tax Credit Information Report,” “Profit Reinvestment Statement,” “Withholding CIT Report”; To declare tax upon recovery: “Profit Reinvestment Statement,” “Foreign Investor Reinvestment Tax Credit Information Report”; and Tax bureau to keep a credit ledger and recover taxes + late interest for improper claims.
Policy execution	Unused balances as of Dec 31, 2028, can be used until cleared; and Retroactive claims allowed for eligible reinvestments from January 1, 2025, to the announcement date (credit applies only to post announcement tax liabilities).

Read also: China Grants 10% Tax Credit for Overseas Investors Reinvesting Profits

Moreover, on July 7, 2025, seven key government agencies—including the National Development and Reform Commission (NDRC), the MOF, and the People’s Bank of China—jointly issued the Notice on Implementing Several Measures to Encourage Domestic Reinvestment by Foreign-Invested Enterprises (the Notice).

Key measures include:

• Establishing a reinvestment project database and adding qualifying projects to the priority foreign investment list;
• Offering preferential industrial land prices, streamlined industry access, tax incentives, and import equipment benefits;
• Optimizing foreign exchange management by allowing onshore transfers of foreign-currency profits and simplifying registration procedures; and
• Supporting financing channels such as “Panda bonds” (RMB-denominated bonds issued in China by overseas entities).

These measures aim to strengthen China’s foreign investment environment and promote sustained reinvestment by foreign-invested enterprises.

Read also: China Rolls Out Additional Policies to Boost Foreign Firms’ Reinvestment

Hainan FTP’s new tax measures with island-wide customs closure

On December 18, 2025, Hainan Free Trade Port (FTP) will formally commence island-wide customs closure operations—a milestone in China’s efforts to create a high-standard free trade environment. In preparation, the MOF, General Administration of Customs (GAC), and the STA have jointly issued Notice on the tax policy for goods entering and leaving the “first line” and “second line” of Hainan Free Trade Port and circulating on the island (Cai Guan Shui [2025] No. 12), setting out unified tax policies for goods moving across the “first line” (between Hainan FTP and overseas markets) and the “second line” (between Hainan FTP and the Chinese mainland), as well as for intra-island circulation. This new regulation consolidates and replaces multiple existing “zero-tariff” policy documents, providing greater clarity and consistency for businesses operating in or trading with Hainan.

Policy area	Main provisions
“First line” import policy	Zero-tariff policy: • Eligible entities – Independent legal-entity enterprises and public institutions registered in Hainan; certain private non-enterprise entities in science and education; list dynamically adjusted and filed by the Hainan provincial government; • Scope – Goods outside the taxable imports catalogue (expanded from 1,900 to ~6,600 tariff lines); • Exemptions – Import duty, import-stage VAT, and consumption tax; enterprises may voluntarily forgo exemptions but cannot reapply for the same goods within 12 months; • Exceptions – Goods in the taxable imports catalog are subject to import duty, VAT, and consumption tax.
“Second line” entry into the mainland	• Tax replenishment – Zero-tariff goods and products made from them entering the mainland must pay import duty, VAT, and consumption tax on imported materials; if these taxes were already paid at the import or domestic circulation stage, no additional payment is required; • Processing value-added exemption – Goods containing imported materials produced by encouraged-industry enterprises in Hainan with ≥30% value added can enter the mainland duty-free, paying only import-stage VAT and consumption tax.
Intra-island circulation	• Between eligible entities – No replenishment of import-stage taxes; only domestic VAT and consumption tax apply; • To non-eligible entities or individuals – Replenishment of import-stage taxes plus domestic VAT and consumption tax.
Four-category goods rules	Four categories: (1) tariff quota goods; (2) goods subject to trade remedies; (3) goods under suspended tariff concessions; (4) goods subject to retaliatory tariffs (unless exempt). Treatment: • Zero-tariff goods themselves in these categories – Zero tariff applies at first-line import, but category measures enforced; replenishment of three taxes plus measures apply when entering mainland or circulating to non-eligible parties; • Processed products falling into these categories – Tax replenishment and measures enforced according to finished product status; after replenishment for domestic circulation, category measures no longer apply.
Special goods management	Zero-tariff operational transport and yachts: • Aircraft – Nationality/right registration, Hainan main base, operates domestic/international routes starting or stopping in Hainan; • Ships – Registered at Hainan port, company registered in Hainan, operates domestic/international routes starting or stopping in Hainan FTP; • Yachts – Registered in Hainan, only sail within Hainan waters; • Vehicles – Mainland transport must have either origin or destination in Hainan, mainland stay ≤120 days/year (except point-to-point transport). Maintenance services – Repair of specified aircraft, ships, yachts, or production equipment in Hainan are exempt from replenishment of import-stage taxes; repaired goods cannot be diverted to other uses.
Supervision and penalties	• Customs electronic ledger for intelligent supervision of zero-tariff goods; no special customs relief procedures required; • Violations handled by relevant Hainan authorities; smuggling or customs violations handled by customs/regulators; criminal liability pursued where applicable.

As a supporting measure to Cai Guan Shui [2025] No. 12, the MOF, GAC, and STA have jointly issued Cai Guan Shui [2025] No. 13, which specifies the exact scope of taxable imports for the “first line” of Hainan FTP. The taxable imports catalogue will take effect on December 18, 2025, in tandem with the island-wide customs closure. The catalog covers two main categories: (1) a detailed list of designated goods; and (2) goods subject to trade remedy measures.

Moreover, on July 23, 2025, the GAC also released another set of measures, titled the Measures for the Supervision of Hainan Free Trade Port (hereinafter, the “Supervision Measures”), which aim to establish a clear and efficient regulatory framework for customs supervision within the Hainan FTP. The Supervision Measures simplify procedures and outline the customs processes for zero-tariff policies.

Read also: Hainan to Launch Independent Customs Operations Dec 18: Why It Matters

The Shanghai tax bureau released a tax incentive guide on international shipping

In June 2023, the Shanghai Municipal Government launched an action plan to accelerate the development of Shanghai as a leading international shipping center, targeting a modern, high-quality, and digitally advanced shipping service system by 2025 and a globally leading center by 2035.

Effective February 1, 2025, revised regulations were introduced to strengthen planning, infrastructure, high-end shipping services, technology innovation, and business environment improvements, aiming to boost Shanghai’s shipping competitiveness and global resource allocation.

To support these goals, the Shanghai Taxation Bureau consolidated key tax incentives and facilitation measures into a comprehensive guideline, the Guidelines on Major Tax and Fee Support Policies for Building Shanghai’s International Shipping Center. This guide aims to help shipping and related industries’ taxpayers more easily understand and benefit from policy incentives.

Tax category	Incentive	Eligible entities	Benefit details	Key conditions
VAT incentives	1. International transport services VAT	Units and individuals providing international transport services	VAT exemption or zero-rate VAT, depending on qualification status	Must have relevant qualification; zero-rate applies if qualified, exemption if not
	2. Freight forwarding	International freight forwarding companies	Exempt from VAT on direct or indirect international freight forwarding services	All international freight forwarding income and payments to carriers must be settled via financial institutions
	3. Waterway transport	Water transport enterprises without a "Nationality Ship Transport Operation Permit"	VAT exemption for international transport via ships	First-time exemption requires registration with the tax authorities
Corporate income tax incentives	1. Distant-water fishing	Distant-water fishing enterprises	Exemption from corporate income tax on income from distant-water fishing	Must hold a valid qualification certificate from the Ministry of Agriculture
	2. Cross-strait direct shipping	Taiwanese shipping companies	Exemption from corporate income tax on cross-strait direct shipping income	Must hold a Ministry of Transport license; registered in Taiwan; provide jointly certified documents
Individual income tax incentives	1. Salaries for distant-water crew	Crew sailing over 183 days/year on international vessels	50% of salary counted as taxable income	Crew must be registered on international or distant-water fishing vessels; workdays exceed 183 days annually
	2. Meal allowance deduction	Distant-water crew with collective meals	Meal subsidies excluded from taxable income	Meals must be collective, not paid individually
Property and behavior tax incentives	1. New energy vessels	Owners/managers of new energy vessels	Exempt from vehicle and vessel tax	Main propulsion must be a pure natural gas engine
	2. Farmland occupied by ports/lanes	Entities occupying farmland for ports, lanes	Reduced farmland occupation tax (RMB 2/sq.m)	Applies to approved ports and waterways used for ship access/safety
	3. Vessel emissions	Entities discharging taxable pollutants	Exempt from environmental protection tax	Applies to mobile pollution sources, including ships
	4. Fishing and aquaculture vessels	Owners/managers of fishing vessels	Exempt from vehicle and vessel tax	Registered as fishing or aquaculture vessels
Export tax refund incentives	Port of departure tax refund	Export enterprises	Tax refund applied immediately upon departure for container cargo	Must declare and apply within 2 months; specific ports and vessels' conditions apply
Comprehensive tax incentives	Duty exemption for inbound repairs	Enterprises with legal status in the Shanghai FTZ special customs zones	Duty, VAT, and consumption tax  exempted if goods are repaired and re-exported	Must meet operational, registration, product, management, and customs system requirements

Adjustment to the consumption tax on ultra-luxury passenger cars

On July 17, 2025, the MOF and STA jointly issued an announcement, optimizing the consumption tax policy for ultra-luxury passenger cars. The key changes affect the tax base, inclusion of new energy vehicles (NEVs), and tax treatment of second-hand cars. The new rules took effect on July 20, 2025.

Key policy changes include:

• Tax threshold lowered: The retail price threshold for consumption tax collection has been lowered from RMB 1.3 million (US$182,000) to RMB 900,000 (US$126,000) (excluding VAT). Passenger cars and light/medium commercial passenger vehicles priced at or above RMB 900,000 (US$126,000) are subject to the tax, including pure electric and fuel cell vehicles.
• NEVs included in retail taxation: Pure electric and fuel cell vehicles, previously exempt from consumption tax at retail, are now subject to tax at the retail stage only. Production and import stages remain exempt.
• Import tax adjustment: Vehicles with a taxable import price of RMB 900,000 (US$126,000) or above must pay consumption tax upon import.
• Second-hand vehicles exempt: Second-hand ultra-luxury cars that have completed registration and are not scrapped are exempt from consumption tax to avoid double taxation.
• Retail sales amount clarified: The taxable retail sales amount includes all payments related to the purchase, including premiums for accessories, services, and other fees outside the vehicle price.
  • Review tax reporting frameworks for all models to ensure compliance with the new scope, including proper inclusion of extra-contractual fees;

Implications and recommendations

The lowered threshold and expanded scope aim to stabilize fiscal revenue by broadening the taxable base amid shrinking luxury vehicle sales due to past incentives. The clear exemption of second-hand luxury vehicles from consumption tax resolves longstanding tax disputes and effectively prevents double taxation. Furthermore, incorporating extra-contractual fees—such as charges for accessories and services—into the tax base closes existing loopholes that some enterprises exploited through contract splitting to avoid tax liabilities.

Automotive companies should:

• Reassess pricing strategies by building dynamic tax burden models to balance tax pass-through and cost absorption; and
• Strategically plan NEV product lines to maintain competitiveness despite higher retail tax burdens on luxury fuel vehicles.

The inclusion of NEV at the retail stage strikes a careful balance between preventing tax revenue loss and supporting front-end research and manufacturing by maintaining exemptions at the production and import stages. To mitigate risks arising from policy misinterpretation, NEV sellers should proactively update their sales contract terms and conduct thorough compliance reviews.

Optimization of corporate income tax prepayment filing

To implement the Corporate Income Tax Law and related policies, the STA has revised the corporate income tax prepayment filing form and issued the new version of the People’s Republic of China Corporate Income Tax Monthly (Quarterly) Prepayment Declaration Form (Class A) (“Class A Form”). The key adjustments are set to take effect from October 1, 2025.

Key Adjustments to the CIT Prepayment Return (Form A)
	Key provisions & related policies	Compliance risk insights
Scope of application	1. The new Form A applies to monthly/quarterly CIT prepayments for resident enterprises under the audited (account-based) collection method. 2. Branches of consolidated taxpayers operating across different regions must use Form A for both prepayments and annual reconciliation. 3. Enterprises with only non-legal-entity branches within the same province must also use Form A for both prepayments and reconciliation.	Ensure the correct version of the form is used according to the enterprise’s structure to avoid rejection or delays in filing.
Special equipment tax credit	Enterprises purchasing energy-saving, water-saving, environmental protection, or workplace safety equipment may choose to claim the CIT credit either at the prepayment stage or during annual reconciliation. Historical rule: Under 2018 No. 23, the credit could only be claimed during annual reconciliation. Current policy: MOF/STA 2024 No. 9 allows digital or smart upgrades (up to 50% of the original tax basis) to be credited at 10% against the current year’s CIT payable, with unused credits carried forward up to 5 years.	Early access to the credit at the prepayment stage improves cash flow, but enterprises must retain full supporting documentation (purchase invoices, upgrade details) to avoid clawbacks during audits.
Declaration of Export Revenue	Manufacturers/exporters must declare export revenue as follows: • Self-operated exports: declare own product sales revenue. • Commissioned exports: declare revenue corresponding to goods exported under commission. Export agents: must include agency fees in operating revenue and submit the “Summary Table of Commissioned Exports by Export Agents” with client details and export amounts. Failure to submit accurate information will result in being treated as self-operated exports with full tax liability.	Exporters must clearly distinguish between self-operated, commissioned, and agency exports. Export agents must maintain accurate client records to avoid reclassification as self-operated exports and bear the full tax burden.
Main Revisions to the Return	Main form updates: Added employee compensation breakdown, export method classification, updated prepayment tax calculation items, detailed export revenue categories, added equity disposal gain reporting, allowed special equipment credits at prepayment, and added pre-sale revenue reporting for real estate developers. Head office/branch allocation table updates: Adopted the “accumulated tax allocated” dynamic adjustment method, added allocation and tax refund/repayment columns.	Where branch closures or allocation ratio changes occur, calculation methods must be applied correctly to prevent allocation errors. Enterprises without such changes will see

Implementation of the national childcare subsidy scheme

On July 28, 2025, the Implementation Plan for the Childcare Subsidy System, jointly issued by the General Office of the CPC Central Committee and the General Office of the State Council, will take effect. The plan provides that families with children under the age of three will receive an annual childcare subsidy of RMB 3,600 (approximately US$495) per child, disbursed monthly. The subsidy is exempt from individual income tax and will not be included in income calculations for determining eligibility for minimum living allowances or other social assistance programs.

Read also: China Launches First-Ever National Childcare Subsidy: What You Must Know

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