A Brief Review of China’s Agreement on Double Taxation Avoidance
On December 31, 2019, China’s State Administration of Taxation promulgated a public announcement that the new income tax treaty between China and New Zealand, which was signed on April 1, 2019 and has gone through both countries’ domestic procedures to be put into effect, will be effective from January 1, 2020. As of the end of 2019, China has signed 107 tax treaties with other countries on avoiding double taxation on corporate income and individual income etc., of which about 100 treaties are currently in effect. China has also signed two double taxation avoidance (“DTA”) arrangements with Hong Kong and Macau Special Administrative Regions and one DTA agreement with Taiwan. Moreover, around ten tax information exchange agreements and certain multilateral conventions work together to administer China’s multilateral tax matters and implement tax treaty-related measures. China’s DTA agreements and relevant implementation regulations basically follow the Model Treaty Convention of the Organization for Economic Cooperation and Development.
Under most such DTAs, a comparatively fixed place through which the business activities of a foreign enterprise are wholly or partially carried on in China would become its permanent establishment in China. Once such permanent establishment is deemed by the competent Chinese tax authority to have been created, the business profits derived therefrom shall be subject to PRC enterprise income tax, which may be allowed as a credit against the tax payable in the contracting country upon satisfaction of certain requirements. With regard to different types of income derived from the foreign enterprise or individual, such as dividends, royalties, capital gains etc., different applicable rates of withholding taxes and different determination criteria shall apply. Foreign enterprises or individuals should look into the relevant DTAs or consult with Chinese tax lawyers before conducting or involving themselves with any business in China.
