Previously required withdrawal regulations: Implementation Rules of the Law of the People's Republic of China and Foreign-Funded Enterprises: Article 58 Foreign-funded enterprises shall withdraw their profits from income tax in accordance with Chinese tax laws to reserve funds and employee incentive and welfare funds.

The withdrawal ratio of the reserve fund shall not be less than 10% of the after-tax profits. When the cumulative withdrawal amount reaches 50% of the registered capital, no further withdrawals can be made.

The withdrawal ratio of employee incentives and welfare funds shall be determined by foreign-funded enterprises themselves.

Foreign-funded enterprises may not distribute profits before making up for losses in previous fiscal years; undistributed profits in previous fiscal years can be distributed together with profits available for distribution in the current fiscal year.

In 2006, the new Company Law was implemented, which abolished the above requirements, unified domestic and foreign capital, and only required the withdrawal of statutory provident fund and discretionary provident fund.

Company Law: Article 167 When a company distributes after-tax profits for the year, it shall withdraw 10% of the profits and put them into the company's statutory public reserve fund.

If the cumulative amount of the company's statutory public reserve exceeds 50% of the company's registered capital, no further withdrawals may be made.

If the company's statutory reserve fund is insufficient to make up for losses in previous years, it shall first use the current year's profits to make up for the losses before withdrawing the statutory reserve fund in accordance with the provisions of the preceding paragraph.

After the company withdraws the statutory public reserve fund from the after-tax profits, it can also withdraw the discretionary public reserve fund from the after-tax profits upon resolution of the shareholders' meeting or general meeting of shareholders.

Regarding the specific uses of employee rewards and welfare funds, Article 57 of the "Accounting System of the People's Republic of China and Foreign-Invested Enterprises" "Employee rewards and welfare funds shall be used for the benefit of enterprise employees"

"Non-recurring rewards or various collective benefits, the buildings, facilities and other assets formed therein shall not be regarded as the property of the enterprise", the specific purpose of employee rewards and welfare funds should be relatively clear, that is, used for non-recurring benefits to employees.

Recurring rewards, such as rewards for major contributions, major achievements, particularly outstanding performance, etc.; and collective benefits for employees, such as building and repairing employee housing, etc.

However, there are many documents that stipulate the purpose of the reserve fund. The purpose of withdrawing the reserve fund is to improve the company's ability to resist risks. After all, the foundation of foreign companies is not within the country.

Therefore, reserve funds are generally reserved to cover corporate losses.