How to withhold tax rates of royalty, dividend and interest in China
Since the early 80s, China has entered tax treaties with 107 countries for the avoidance of double taxation and to prevent fiscal evasion. Among the 107 tax treaties, 99 are already in effect, with the remaining 8 still under domestic legalization procedures in both countries. The State Administration of Taxation of China website has the status of the tax treaties in Chinese and English.
A large portion of the tax treaties were signed in the early 80’s and 90’s, but the tax landscape both in China and internationally has change tremendously since then. In recent years, China has updated the tax treaty terms with a number of countries, such as the United Kingdom (first signed in 1984, updated in 2013, effective in 2014), France (first signed in 1984, updated in 2013, effective in 2015), Germany (first signed in 1985, updated in 2014, effective in 2017) etc. The most recent updated treaty with New Zealand (first signed in 1986, updated on 1 April 2019, to be legalized and put into effect) has introduced up-to-date tax concepts, following the development of OECD guidelines and BEPS (Base Erosion and Profit Shifting) Action results. The updated tax treaties, and new tax treaties China enters with other countries reflect recent developments of international tax regimes to combat tax evasion.
The withholding tax rates on revenues of dividend, royalty and interest vary in different tax treaties, with some having been updated. Below is a quick reference guide to the tax rates in tax treaties of countries China has major investments or businesses flow in or out.
|
|
Dividend |
Royalty |
Interest |
|
Japan |
10% |
10% |
10% |
|
United States |
10% |
10% |
10% |
|
France |
5% (with ≥25% equity shares in the paying company)
10% |
10% |
10% |
|
United Kingdom |
5% (with ≥25% equity shares in the paying company)
10%
|
10%
7% (for use of industrial, commercial or scientific equipment)
|
10% |
|
Germany |
5% (with ≥25% equity shares in the paying company)
10%
15% (derived from immovable assets) |
6% (for use of industrial, commercial or scientific equipment) |
10% |
|
Singapore |
5% (with ≥25% equity shares in the paying company)
10% |
10% |
10%
7% (for banks or financial institutions) |
|
Sweden |
10% |
10% |
10% |
|
Canada |
10% (with ≥10% equity shares with voting rights in the paying company)
15% |
10% |
10% |
|
New Zealand** |
5% (with ≥25% equity shares in the paying company throughout a 365-day period, change of ownership excluded)
15%
|
10% |
10% |
|
Italy** |
5% (with ≥25% equity shares in the paying company throughout a 365-day period, change of ownership excluded)
10% |
10%
5% (for use of industrial, commercial or scientific equipment) |
10%
8% (for ≥ 3 years long term loan from financial institutions) |
|
The Netherlands |
5% (with ≥25% equity shares in the paying company)
10% |
10%
6% (for use of industrial, commercial or scientific equipment) |
10% |
|
Australia |
15% |
10% |
10% |
|
Switzerland |
5% (with ≥25% equity shares in the paying company)
10% |
9% |
10% |
|
Spain** |
5% (with ≥25% equity shares in the paying company throughout a 365-day period, change of ownership excluded)
10% |
10% |
10% |
|
Austria |
7% (with ≥25% equity shares with voting rights in the paying company)
10% |
10% |
10% |
|
Luxembourg |
5% (with ≥25% equity shares in the paying company)
10%
|
10%
6% (for use of industrial, commercial or scientific equipment)
|
10% |
|
United Arab Emirates |
7% |
10% |
7% |
|
Korea |
5% (with ≥25% equity shares in the paying company)
10% |
10% |
10% |
|
Russia |
5% (with ≥25% equity shares and at least of EURO 80,000 capital amount in the paying company)
10% |
6% |
5% |
|
India |
10% |
10% |
10% |
|
Israel |
10% |
10% |
10%
7% (for banks or financial institutions) |
|
Vietnam |
10% |
10% |
10% |
|
Ireland |
5% (with ≥10% equity shares with voting rights in the paying company)
10% |
10%
6% (for use of industrial, commercial or scientific equipment) |
10% |
|
Indonesia |
10% |
10% |
10% |
|
Turkey |
10% |
10% |
10% |
** These tax treaties are not effective yet.
As some of the tax treaties offer lower withholding tax rates, companies could take advantage of these beneficial tax rates through proper tax planning. A foreign party needs to prove it is a “beneficiary owner” of the tax treaty for the revenues it receives from a Chinese party if it wishes to enjoy the lower tax rates. It is not granted automatically. There are tax procedures to be filed and completed before the foreign party can enjoy this beneficial treatment. The Chinese tax authority updated the tax procedure in late 2019. Where the “beneficiary owner” has more discretion for judgement, they also bear more responsibility for the burden of proof. We recommend companies consult tax professionals before embarking on any changes to their tax regimes.
For more information, please contact Elizabeth Shi: eshi@rouse.com, or +86 10 86324046.
