The Ministry of Finance and the State Administration of Taxation issued the Notice on Improvement of the Income Tax Credit Policy for Foreign Enterprises (the “Notice”), which became effective on January 1st, 2017.
The Notice provides that enterprises may calculate foreign income taxes in one of two different ways – they may calculate foreign income taxes in individual countries (regions); or they may calculate the income tax payable on their aggregate overseas income and then calculate allowable overseas income tax credits and credit quotas based on rates set out in Article 8 of Financial and Taxation [2009] Document No.125. The calculation method selected by an enterprise will apply for five consecutive years. Meanwhile, the Notice clarified that calculating the income tax credit and credit quotas for the overseas dividend income of an enterprise using the legally prescribed method shall apply to overseas enterprises with direct or indirect shareholding percentages of 20% or more. This provision applies only to five-tier enterprises defined by the means of shareholding stipulated by Article 6 of Financial and Taxation [2009] Document No.125.

(Source: State Administration of Taxation)