Tax Incentives for CDR Investors Extended Until End of 2027

The Chinese Ministry of Finance, together with other government agencies, announced the extension of tax incentives for private investors engaged in transactions with Chinese Depositary Receipts (CDR) of innovative enterprises registered within the country. This measure aims to stimulate investment in China's innovative sector and create favorable conditions for the development of high-tech companies.

According to the official statement, income received by individuals from the resale of CDR of innovative enterprises will be temporarily exempt from personal income tax from January 1, 2026 to December 31, 2027. This means that investors will be able to profit from the price difference when buying and selling CDR without paying the corresponding tax, which increases the attractiveness of such investments.

In addition, during the specified period, differentiated taxation of dividends received by private investors from holding CDR of innovative enterprises will be applied. The procedure for taxation of dividends will comply with the provisions established by the Ministry of Finance, the State Tax Administration, and the China Securities Regulatory Commission in previous notifications.

Tax will be withheld and paid by the depositary institution of the innovative company operating in China, followed by providing a full report to the tax authorities at the location of the depositary.

For dividends received by private investors and already taxed outside China, there is a provision for crediting paid taxes in accordance with the personal income tax law and the provisions of bilateral agreements to avoid double taxation. This allows avoiding double taxation of income from CDR investments.

The extension of tax incentives for investors in CDR of innovative companies is an important step by the Chinese government aimed at supporting the development of the innovative economy. CDR allow Chinese investors to gain access to shares of innovative companies registered abroad, and tax incentives make such investments more attractive. This contributes to the inflow of capital into the innovative sector and stimulates the development of new technologies.

This measure will have a positive impact on the CDR market and attract more private investors to participate in financing innovative companies. As a result, an increase in CDR market capitalization and improved liquidity of these instruments can be expected. This will also create favorable conditions for the further development of innovative companies and strengthen the competitiveness of the Chinese economy in the global market.

Overall, the extension of tax incentives for investors in CDR is an important signal of support for innovation from the Chinese government. This measure will contribute to attracting capital to the innovative sector, developing new technologies, and strengthening China's position in the global economy.