Any foreign investor of an EFI which reinvests its share of profit obtained from the EFI directly into that enterprise by increasing its registered capital, or uses the profit as capital investment to establish other EFIs with an operation period not less than five years shall, upon approval by the tax authorities of an application filed by the investor, be refunded 40 percent of the income tax already paid on the reinvested amount. Where foreign investors reinvest directly to organize or expand advanced technology enterprises or export-oriented enterprises, the income tax already paid on the amount of reinvestment may be fully refunded. When a foreign investor reinvests its share of the profit obtained from the enterprise to the same enterprise or other EFIs already in production or business operation (including production or business operation on a trial basis), the above-mentioned operation period shall begin with the date the reinvestment is made. When reinvestment is made to launch a new company, the operation period shall begin with the date when the new company commences its production or business operation (including production or business operation on a trial basis).

In line with the stipulations of the Implementation Rules, the foreign investor, while applying for tax refund on reinvestment, should provide certificates which can confirm the year in which the profits are used for reinvestment. For those who fail to provide certificates, tax authorities can, on the basis of the payable dividend recorded in the book of the enterprise before the reinvestment is made by the foreign investor, or of that part of undistributed profits which is due to the foreign investor, calculate from the earliest year sequentially up to the subsequent year in which the profits are used for the reinvestment, thereby calculating the income tax to be refunded to the enterprise.

In accordance with the Implementation Rules, those who meet the following situations shall repay 60 percent of the tax already refunded: an export-oriented enterprise set up or expanded with reinvestment by a foreign investor fails to reach the standard for the export-oriented enterprise in three years beginning from the day the enterprise starts production and operation, or within three years after the funds for reinvestment are put in; an advanced technology enterprise set up or expanded with reinvestment made by foreign investor proves not up to the required standard through assessments and thus loses the status as an advanced technology enterprise within three years beginning from the day the enterprise starts production and operation or after the reinvestment funds are put in.

For a foreign investor who reinvests in another place, the tax authorities in the original tax payment place, while handling tax refund in accordance with the implementation rules, should simultaneously send the Advice Note on the Already Refunded Tax for the Reinvestment Made by the Foreign Investor in Other Regions to the tax authorities in the location where the reinvestment is made. When the foreign investor is examined and confirmed by the tax authorities in the location where the reinvestment is made that he withdraws from the locality before the five-year operational period expires after reinvestment as stated in Article 10 of the Tax Laws, or he meets the situation as stated in Paragraph 3 of Article 81 of the implementation rules, the foreign investor should perform the formalities for repaying all or part of the already refunded tax with the tax authorities in the location where the reinvestment is made.

The "tax refunds on reinvestments" provisions in the Tax Laws and its implementation rules apply to foreign investors only. EFIs in China are not usually considered as foreign investors even if they do invest in other enterprises. According to applicable regulations, only those EFIs wholly owned by foreign investors and specializing in investment businesses are deemed as foreign investors applicable of the "tax refunds on reinvestments" provisions in the Tax Laws and implementation rules, while other EFIs shall not enjoy the preferences.

Where foreign investors in EFIs who have paid up only part of their capital, reinvest their shares of profits obtained from the EFIs in China, they should make up the unpaid capital at first, and the amount of reinvestment in excess of that payment is subject to the tax refunds under applicable law.

No tax shall be refunded if the liquidation income foreign investors have obtained from EFIs is used as reinvestment funds.

It can be deemed that a foreign investor who has received a tax refund for reinvestment did not withdraw those investments if, during the reasonable reorganization of a corporate group (including EFIs in which a foreign investor holds 100% of the shares and is specifically engaged in investment business), s/he assigns the reinvestment to a corporation in which s/he directly or indirectly holds, or with which someone commonly holds, 100% shares. The tax refund received by the foreign investor thus need not be recovered. With the exception of this circumstance, the reinvestment withdrawn by a foreign investor through actions such as the transferring of shares shall be handled according to applicable regulations.

To apply for a tax refund on the reinvestment from the tax authorities, the foreign investors in EFIs need to present documents as required. Where a reinvestment is made in the same enterprise to increase the registered capital, the foreign investors need to present Corporate Business License of People's Republic of China (Duplicate) (Photocopy); Capital Verification Report by a certified public accountant in China; Approval on the Issue of the Increased Capital of the Enterprise (Photocopy) from either Ministry of Commerce or Beijing Foreign Trade Committee; Examination and Approval Form of the Reinvestment of Profit by Foreign Investor in Enterprise with Foreign Investment (Photocopy) from foreign exchange administration authorities; Certificate of Income Tax Paid by Enterprises with Foreign Investment and Foreign Enterprises (Photocopy), and other papers as required by the tax authorities. Where a reinvestment is made in other enterprises, the foreign investors need to present: Corporate Business License of People's Republic of China (Duplicate) (Photocopy) from the invested company; Capital Verification Report by a certified public accountant in China; Approval for the Enterprise with Foreign Investment in People's Republic of China from the invested company; Examination and Approval Form of the Reinvestment of Profit by Foreign Investor in Enterprise with Foreign Investment (Photocopy) from foreign exchange administration authorities; Certificate of Income Tax Paid by Enterprises with Foreign Investment and Foreign Enterprises (Photocopy) (Photocopy); certificates issued by competent authorities indicating the status of the invested company as an export-oriented enterprise or advanced technology enterprise, and other documents as required by the tax authorities. Upon the receipt of the above documents, the tax authority should get the following work done in 30 working days: verify the documents presented by the foreign investor, calculate the refundable tax according to Tax Laws and applicable regulations, reply on the issue of refund and refund the tax to the applicant.