Double Taxation Agreement China – The Netherlands
If you decide to utilize your existing Dutch Company to become the shareholder of the China
investment, please note that there is a Double Taxation Agreement between The Netherlands and
China and you can benefit as follows:
China Domestic
Netherlands Domestic
DTA Rate
Dividends
10%
15%
5/10%
Interests
10%
0%
10%
Royalties
10%
0%
10%
Capital Gains
10%
0%
10%
The Double Taxation Agreement (DTA) between China and The Netherlands was first signed on 13th
May 1987and has been updated in 2013. The updated version entered into force in both countries on
st
1 January 2015.
Dividends Tax
The DTA states that the withholding tax rate for dividends shall not exceed 5%, of the gross amount of
the dividends if the beneficial owner is a company which directly owns at least 25% of the capital of
the company paying the dividends; and 10% of the gross amount of the dividends in all other cases.
Withholding Tax
Withholding Tax (WT) is charged on an array of service fees billed by a company in its home country
to a company (which could be either a client or a subsidiary) in China for the service the former
provides to the latter. As profits tax cannot be charged to a company that is non-resident, WT takes
its place. The amount of WT varies considerably depending upon the service provided.
Effective withholding tax charge for interest shall not exceed 10% of the gross amount of
interest.
Effective withholding tax charge for royalties shall not exceed 10% of the gross amount of
royalties.
While Chinese foreign-invested entities can sign a variety of service agreements with foreign
companies, including with their headquarters (HQ), these agreements can sometimes be looked upon
with suspicion as ‘constructed channels’ for sending money between HQ and their subsidiary.
It is important to bring the intent to use the DTA to the attention of the local tax office in China,
together with copies of the DTA (in Chinese) with the articles of association and business license of
the company. Permission is required by tax officials in China to reduce the amount of taxes due from
the company and they need to provide an explanation to their own superiors. Accordingly, a well
presented case needs to be made. It is advisable that this involve assistance from a professional firm
in China qualified to assist. However the tax savings obtained typically outweigh the fee burden
charged for the service.
Permanent Establishment
The DTA provision permits a 7% withholding tax to be imposed on technical fees, regardless of
whether the technical services had created a Permanent Establishment (“PE”). In addition the DTA
introduced a PE test which applies where the provision of services is for a period of more than 6
months in a 12 month period. This PE test is part of many DTAs signed by China with other countries
as, in practice, local tax authorities in China have applied this rule by counting one day’s presence in a
month as a whole month; this can significantly increase the PE risk even though the actual length of
stay in China is limited.
Capital Gains
For Dutch investors into China, the DTA does not exclude any China sources share disposal gains from
the imposition of tax in China. Meaning that, the local tax rate of 10% will apply on all capital gains.
Transfer Pricing
It should be noted that under the banner of WT, services and IP issues, such structures can become
complicated, and there are additional rules to cater for fair and reasonable use over this. These rules
come under China’s Transfer Pricing regulations
For more information please refer to the China – Netherlands Double Taxation Agreement as follows:
http://www.chinatax.gov.cn/2013/n2925/n2955/c309798/part/309800.pdf