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China: Double Tax Treaties

Introduction

A comprehensive double tax arrangement (“New DTA”) with Hong Kong Special Administrative Region (“HKSAR”) Government came into effect from 1 January 2007, in China. This replaced the limited scope arrangement for the avoidance of double taxation signed in 1998. The reduced withholding tax rates on dividends, royalties and interest under the comprehensive double tax arrangement are amongst the lowest rates available in other double tax treaties signed by China.

The SAT issued a tax circular in April 2007 to provide interpretation and implementation guidelines on the New DTA on the side of China. It is important to note that the interpretation in this circular is applicable to other tax treaties that China has concluded with other countries/regions if the content of the relevant articles are the same and no other interpretation and implementation guidelines have been provided before. As such, this circular might have widespread and far-reaching impact on tax residents in HKSAR and other countries/regions.

China concluded a new double tax treaty (“New DTT”) with Singapore in July 2007. After ratification by both countries, the New DTT replaced the existing one which had been in force since 12 December 1986. Among others, the withholding income tax rates for dividend and royalty were further reduced in the New DTT. In addition, the “Capital Gains” clause was changed.

In August, 2009, a second protocol was added to the double taxation agreement between Singapore and China that originally became effective at the beginning of 2008.

The major change in the new protocol relates to Article 22 of the original agreement that talks to the elimination of double taxation on dividends. In the new protocol, where income is derived from a dividend paid by a company which is a resident of Singapore to a company which is a resident of China, and which owns not less than 20% (previously 10%) of the shares of the company paying the dividend, the tax credit in China will take into account the tax paid in Singapore by the company paying the dividend in respect of its income.

In December, 2009, the governments of China and the Bahamas signed an OECD model agreement on the exchange of tax information. The agreement was signed by the Bahamaian Minister of Foreign Affairs and Deputy Prime Minister, Brent Symonette, and Chinese Ambassador to the Bahamas, Dingxian Hu.

Thanking the Chinese Ambassador for his influential role in the negotiation of the Tax Information Exchange Agreement (TIEA), Symonette noted that the agreement was the first of its kind undertaken by China.

The TIEA was the sixth concluded by the government of the Bahamas which incorporates the accepted international standards in respect of transparency and effective information exchange in tax matters. It was the third TIEA concluded by the government of the Bahamas with a member of the G-20.

The Deputy Prime Minister also touted the agreement as another milestone in the ever deepening relationship between the Bahamas and China. Together with the Investment Promotion and Protection Agreement with China, the TIEA provides an enhanced framework for economic cooperation.

The investment agreement was signed in early September on the occasion of a visit to the Bahamas by Wu Bangguo, Chairman of the Standing Committee of the National People’s Congress of the People’s Republic of China.

It addresses the conditions for creating, stimulating, encouraging, promoting, improving, and protecting investment by Bahamian and Chinese investors in both countries.

In December, 2009, the government of the British Virgin Islands (BVI) concluded an Organization for Economic Cooperation and Development (OECD) model Tax Information Exchange Agreement (TIEA) with China.

The TIEA allows the signing parties to request information from each other that is relevant to a tax investigation. As provided in the agreement, such information would typically relate to bank accounts or the beneficial ownership of companies or trusts.

In February, 2010, Barbados and China signed a Protocol to amend the existing Double Taxation Agreement (DTA) between the two countries.

Minister of International Business and International Transport, George Hutson, and China's Ambassador to Barbados, Wei Qiang, initialled the document, which amends the existing 10-year old Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income.

The agreements incorporate changes to China's domestic law, while improving the treaty-based mechanism for tax information exchange.

Commenting, Hutson said: "I am aware that there has been much speculation about this protocol as to what the changes, as agreed, may mean for eligible taxpayers in our two countries. However, I am satisfied that taxpayers will find that our treaty. with the additions contained in this protocol, remains clear, certain and full of opportunity for the avoidance of double taxation with respect to income on capital.”

"Importantly, the protocol makes abundantly clear our commitment to internationally accepted principles of transparency and tax information exchange, to which we have agreed. I am, therefore, pleased that in this regard, we are able to bring the language of this treaty into conformity with [existing rules] in our tax treaty network."

Explaining the need for amending the agreement, Wei said: “We wanted to take into account the new circumstance we've come to face and to have the agreement fully meet its objectives. Now, with today's signing ceremony, and thus the conclusion of this protocol to the agreement, I think we can safely say that new horizons have been opened for our entrepreneurs in both countries to explore and exploit their business opportunities in a sound and confident manner for the benefit of both sides.”

In April, 2010, Argentina and China signed a draft agreement on tax information exchange to help promote their growing bilateral trade.

Wang Kang, deputy director of China's State Administration of Taxation, said the draft agreement was signed by him and Argentine Director of Federal Administration and Public Revenues, Ricardo Echegaray.

It was agreed that President Cristina Fernandez's impending visit to China would be the ideal opportunity to sign the final agreement.

The standard tax information exchange agreement produced by the Organization for Economic Cooperation and Development was used as a basis for negotiation and all key issues were discussed and resolved amicably, according to both sides.

In July, 2010, the Maltese government announced that it had concluded negotiations with China towards revising the convention for the avoidance of double taxation and fiscal evasion between the two countries. The new text is based on the OECD Model Tax Convention on Income and on Capital and also recent tax treaties concluded by both countries. When ratified the agreement will supersede the existing treaty dating back to February 1993.

Welcoming the prospect of a revised agreement with China, Malta’s Minister for Finance, the Economy and Investment, Tonio Fenech stated: “This agreement will provide investors from both countries with more attractive conditions for investment in Malta or China. Such conditions may also help Chinese investors to tap in a more efficient way into the European market. China is a country which is still growing strongly and offers significant investment potential.”

Alongside provisions to improve the environment for prospective investors, the agreement also contains provisions for the exchange of tax information, in accordance with the internationally agreed standard on transparency and information exchange. The government said the pact would establish better channels for the exchange of information, which would be instrumental in the territories' mutual efforts to prevent fiscal evasion.

Fenech continued: “The signing of this double tax agreement will be another important milestone in the relations between Malta and China and will contribute to deepen and strengthen already very good relations between our two countries.”

“[The pact] will also strengthen our growing network of over fifty tax treaties; This improves the value of our country to potential investors, which is a key objective in our efforts to attract new and better jobs to our shores.”

In July, 2010, Singapore and China signed a further protocol to incorporate into their existing double taxation agreement (DTA) the new internationally-agreed Organization for Economic Cooperation and Development standard for the exchange of information for tax purposes.

The protocol was signed in Beijing on July 23 by Moses Lee, Singapore’s Commissioner of Inland Revenue, and Wang Li, China’s Deputy Commissioner of the State Administration of Taxation. The original DTA was signed on July 11, 2007.

The protocol gives the tax authorities of both countries a greater ability to exchange taxpayer information and to exchange information on a wider range of taxes. It also provides that neither tax authority can refuse to provide information solely because it does not require the information for its own domestic purposes, or because the information is held by a bank or similar institution.

Latest China Treaty Updates

Treaty Update: China - Pakistan
19 December, 2016
A third Protocol to China's double tax agreement with Pakistan was signed on December 8.
Treaty Update: China - Macau
28 July, 2016
A third Protocol to the China-Macau double tax agreement was signed on July 19, 2016.
Treaty Update: Kenya - China
30 June, 2016
Kenya and China are in the process of negotiating a DTA, it was announced during a bilateral meeting on June 9.
Treaty Update: Russia - China
05 February, 2016
Russia's lower house of Parliament on January 27, 2016, approved a law to ratify the 2014 DTA with China.
Treaty Update: Zimbabwe - China
10 December, 2015
Zimbabwe's tax authority announced the signing of a DTA with China on December 1.
Treaty Update: Germany - China
06 November, 2015
Germany's upper house of Parliament approved draft law 396/15 on October 16, 2015, which would ratify the pending DTA signed with China.
Treaty Update: Hong Kong - China
22 October, 2015
Hong Kong issued an Order to ratify the DTA signed with Mainland China on October 2, 2015.
Treaty Update: Taiwan - China
03 September, 2015
Taiwan and China signed a DTA on August 25, 2015.
Treaty Update: China - Chile
09 June, 2015
China signed a DTA with Chile on May 25, 2015.
Treaty Update: China - Russia
04 June, 2015
China and Russia signed a DTA on May 8, 2015.
Treaty Update: Russia - China
25 March, 2015
The Russian Government confirmed on March 18, 2015, that it has agreed to sign a Protocol with China to amend their DTA.
Treaty Update: China - Switzerland
02 February, 2015
The DTA between China and Switzerland became effective on January 1, 2015.
Treaty Update: China - France
13 January, 2015
According to preliminary media reports, the DTA between China and France came into effect on January 1, 2015.
Treaty Update: China - Estonia
16 December, 2014
China signed a protocol to amend its DTA with Estonia on December 9, 2014.
Treaty Update: France - China
02 December, 2014
The French President signed a law to ratify the DTA with China on November 26, 2014.
Treaty Update: China - Russia
16 October, 2014
China signed a new DTA with Russia on October 13, 2014.
Treaty Update: Germany - China
03 April, 2014
Germany and China signed a DTA Protocol on March 28, 2014.
Treaty Update: Russia - China
18 February, 2014
Russia on February 5, 2014, completed the drafting of a new DTA with China to replace their 1994 pact, the Russian Government said on February 15, 2014.
Treaty Update: Liechtenstein - China
30 January, 2014
Liechtenstein and China signed a TIEA on January 27, 2014.
Treaty Update: Ecuador - China
16 January, 2014
Ecuador on January 13, 2014, ratified the DTA Protocol signed with China through Decree no. 208.
Treaty Update: Ecuador - China
06 December, 2013
According to preliminary media reports, Ecuador's parliament on December 3, 2013, approved the DTA and an accompanying Protocol the nation signed with China.
Treaty Update: China - Taiwan
29 November, 2013
According to preliminary media reports, China and Taiwan have settled on the terms for the final draft of an agreement to avoid double taxation, which both expect to soon sign.
Treaty Update: China - France
28 November, 2013
China and France signed a DTA on November 26, 2013.
Treaty Update: Belgium - China
19 November, 2013
Belgium's House of Representatives, the lower house of parliament, on November 7, 2013, endorsed the DTA signed with China on October 7, 2009.
Treaty Update: Bahrain - China
06 November, 2013
Bahrain's Cabinet on November 3, 2013, approved a law to ratify the DTA signed with China.
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