Which Countries Have Double Taxation Treaties with China?

Double Taxation Treaties with China

Double Taxation Treaties with China

January 25, 2018

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Key Takeaways

  1. China has extensively signed double taxation agreements, with the aim to promote economic integration and signal ongoing friendliness to foreign investment
  2. China’s tax authorities carefully review business and transnational arrangements among foreign affiliates, addressing the tendency of MNCs to use related party transactions to reduce taxable income
  3. The tax credit cannot exceed the amount otherwise payable.  In the event that the tax credit exceeds limit, it may be carried forward for five years. An indirect tax credit is also permitted
Summary

Chinese double taxation policy is extensive and has become more robust in recent years. Relief from double taxation can be covered through China’s extensive network of double taxation treaties or through unilateral relief policy. The provisions of these double-taxation treaties are especially useful, not only for multinational corporations and Chinese tax residents, but also for foreign companies that charge services to a China-based entity (that would be subject to a withholding tax). The bulk of China’s double taxation treaties was written and signed in the past several years and, as such, cover IT, Internet, and communications related issues.

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Double Taxation Agreements

China has extensively signed double taxation agreements, with the aim to promote economic integration and signal ongoing friendliness to foreign investment. Each taxation treaty specifies whether the right to taxation is with the country of source or the country of residence.

Main Features of China’s Double Taxation Treaties

  • Relief from double taxation on all types of income including corporate income tax, individual income tax, withholding taxes and dividend taxes
  • Protection for companies in one jurisdiction from being subjected to discriminatory taxation in another
  • Compliant with the OECD’s Exchange of Information Provisions 

Withholding Tax

When a non-Chinese entity bills a Chinese one for services provided, the non-Chinese entity is subject to a withholding tax. As a non-resident enterprise, the withholding tax exists in place of another form of taxation (that is, the taxation that a tax resident enterprise would be subject to). Withholding tax is typically 10-20% of the invoiced amount. 

Double taxation treaties often reduce this amount by nearly 50%. This treatment of withholding tax is useful for multinational companies with an affiliates incorporated in China. For example, when a Chinese affiliates pays a licensing fee to a foreign affiliate for use of the MNC’s intellectual property, the withholding tax in the presence of a double-taxation treaty will often be reduced to around 10% when they might otherwise be closer to 20%.

Dividends Tax

China levies a 10% tax on profit repatriation. Many double taxation agreements reduce the dividends tax by 50%.

Check Our China Labor Law Guide

Double-Taxation Agreements by Region

China has extensively signed double taxation agreements, with the aim to promote economic integration and signal ongoing friendliness to foreign investment. Each taxation treaty specifies whether the right to taxation is with the country of source or the country of residence.

1. Asia & Oceania

Australia, Azerbaijan, Bahrain, Bangladesh, Brunei, Cambodia (signed but not yet effective), Georgia, India, Indonesia, Iran, Israel, Japan, Kazakhstan, Korea, Kuwait, Kyrgyzstan, Laos, Malaysia, Mongolia, Nepal, New Zealand, Oman, Pakistan, Papua New Guinea, the Philippines, Qatar, Saudi Arabia, Singapore, Sri Lanka, Syria, Tajikistan, Thailand, Tunisia, Turkmenistan, Turkey, United Arab Emirates, and Vietnam.

2. Europe

Albania, Armenia, Austria, Belarus, Bulgaria, Belgium, Croatia, Cyprus, Czech, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Latvia, Lithuania, Luxembourg, Macedonia, Malta (signed but not yet effective) Moldova, Norway, Sweden, Iceland, Ireland, Italy, the Netherlands, Poland, Portugal, Romania, Russia, Serbia and Montenegro, Slovakia, Slovenia, Spain, Switzerland, United Kingdom (the U.K.), Ukraine, Uzbekistan, and Bosnia and Herzegovina.

3. Africa

Algeria, Botswana (signed but not yet effective), Egypt, Ethiopia, Morocco, Mauritius, Nigeria, Seychelles, South Africa, Sudan, Uganda (signed but not yet effective), Zambia and Zimbabwe.

4. America