In the first of two articles, we follow the four questions every Chinese outbound investor must answer in sequence: where to invest, what ownership structure to use, how to finance it, and how the structure interacts with ODI requirements.
According to Ministry of Commerce (MOFCOM) data compiled in the China Briefing ODI Tracker, China’s ODI reached US$174.38 billion in 2025 across 11,048 overseas enterprises in 153 countries and regions. Alongside manufacturers relocating capacity to Southeast Asia, Mexico, and Hungary, consumer brands, new energy firms, and mid-sized private enterprises are investing abroad for the first time.
The State Taxation Administration (STA) extended its country tax guidelines for outbound investors to 115 jurisdictions in January 2026 and began issuing country-specific global minimum tax guidance in April. What follows treats each tax rule as the consequence of a business decision.
Plan Overseas Investment
Assess markets, locations, investment structures, Chinese approvals, and regulatory requirements.Decision 1: Where are we investing?
Four tax features of the host country determine everything that follows.
The treaty with China
China has tax treaties with 114 countries and regions. The relevant question is what withholding rates on dividends, interest, and royalties the specific treaty offers, and what permanent establishment thresholds it sets. A favourable treaty argues for direct investment; a weak one for an intermediate holding company with better access.
The corporate tax rate
A host rate near China’s 25 percent means dividends come home with little additional Chinese tax after foreign tax credits (covered in Part 2). A low rate means China collects the difference, and retained profits face controlled foreign company (CFC) scrutiny if the effective rate is below 12.5 percent.
Incentives and tax sparing
Host-country holidays are worth less than they appear unless China’s treaty includes a tax sparing clause crediting tax waived under an incentive; several treaties with developing countries do.
Exchange controls
In markets such as Vietnam and India, remitting dividends can be slower than earning them, which affects how much funding should be repayable debt rather than equity.
Decision 2: What ownership structure should we use?
The second choice is whether to invest directly from the Chinese parent or through an intermediate holding company.
- Direct investment is simplest to administer and suits a long-term holding in a country with a favourable treaty, where no co-investors or regional platform are planned.
- An intermediate holding company can centralise dividend flows, hold intellectual property, serve as the vehicle for acquisitions or joint ventures, and allow a partial exit or listing without disturbing the Chinese ODI registration. The cost is scrutiny: anti-avoidance rules, the principal purpose test, and beneficial ownership requirements mean the entity only delivers if it has local decision-makers, staff, premises, and a commercial rationale beyond tax.
For most Chinese groups, the holding location comes down to Hong Kong or Singapore, and the comparison illustrates how much the calculus has changed.
| Hong Kong | Singapire | |
|---|---|---|
| Headline corporate tax | 16.5% (8.25% on first HK$2m) | 17% |
| Offshore dividends and gains | Exempt under the foreign-sourced income exemption regime only with economic substance, or via a participation exemption (5% holding, 12 months) | Dividends exempt if taxed abroad at 15%+; foreign disposal gains taxable under Section 10L from 2024 unless the entity has adequate substance |
| Withholding on dividends to China | None | None |
| Treaty with China | 5% on dividends (25% holding) | 5% on dividends (25% holding) |
| Pillar Two | IIR and domestic top-up tax from 1 January 2025 | MTT and DTT from 1 January 2025 |
Neither hub is a zero-tax platform for passive income any more; both reward genuine regional headquarters activity and both apply the 15 percent minimum tax to groups with revenue of EUR 750 million or more. Mainland China has not yet enacted the GloBE rules, so the burden sits with overseas entities, but the STA’s guidance signals that in-scope groups are expected to have Pillar Two reporting capability. The UAE, the Netherlands, Luxembourg, Ireland, and Switzerland remain relevant for specific profiles.
Map every anticipated cash flow through the structure and identify at each step the withholding tax, treaty rate, and treatment on receipt. If a layer improves no flow and serves no non-tax purpose, remove it.
Decision 3: How should we finance the investment?
The funding mix follows from the first two decisions. Interest on intercompany debt is generally deductible abroad and taxable in China; dividends are non-deductible abroad but carry credit for underlying tax. Debt therefore helps where the host rate is high, but most jurisdictions now apply thin capitalisation rules, earnings-stripping caps (commonly 30 percent of EBITDA, following the EU Anti-Tax Avoidance Directive and BEPS Action 4), and arm’s-length interest requirements; interest paid to a Chinese lender attracts treaty withholding of 7 to 10 percent; and hybrid instruments are caught by anti-hybrid rules in most developed economies.
On the Chinese side, outbound loans fall under SAFE’s cross-border lending framework and quota rules, and parent guarantees require registration and arm’s-length pricing. Repaying a shareholder loan is also far simpler than reducing share capital, which matters where exchange controls or a partial exit are in view. A documented mix of equity and debt is usually the pragmatic outcome.
Decision 4: How does the structure interact with ODI requirements?
Every choice above must be reflected in China’s outbound filings, and the filings lock it in. Any ODI must complete filing or approval with the National Development and Reform Commission (NDRC) and MOFCOM, followed by foreign exchange registration with the State Administration of Foreign Exchange (SAFE) through its banks. Capital cannot be remitted until SAFE registration is complete, and the process typically takes at least three months; sensitive sectors or countries require approval rather than filing. The structure filed, including any intermediate holding company and the equity-to-loan split, is the structure the group must live with, so tax structuring and ODI filing should run in parallel from the outset.
The structure also sets the group’s reporting footprint. Resident enterprises holding 10 percent or more of a foreign enterprise file an overseas investment report with their annual CIT return, a regime streamlined in 2023 that requires self-assessment of CFC status; groups with revenue above RMB 5.5 billion (US819.60 million)also file country-by-country reports. The STA will see the whole structure; it should be one that can be explained.
How Dezan Shira & Associates can help
Dezan Shira & Associates has supported clients investing across Asia and beyond since 1992. For Chinese companies going global, our international tax and corporate teams provide end-to-end support across the investment lifecycle, from modelling the tax cost of a proposed structure and selecting a holding jurisdiction to arranging the financing mix, completing NDRC, MOFCOM, and SAFE filings, and establishing the operating entity on the ground.
To discuss whether a direct or holding-company structure suits your expansion plans, or to obtain a scoped quote for outbound investment structuring, contact our China desk.
