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China – Expert Welcomes “Long-Awaited” Entry Into Force Of Double Tax Agreement With UK

2 January, 2014

 

The new double taxation agreement (DTA) between the UK and China has now come into force, two years after being signed by the two countries, HM Revenue and Customs (HMRC) has announced.

Robbie Chen of Pinsent Masons welcomed the “exciting” news, which he said would make the UK “one of the most favoured jurisdictions for China inbound investment” alongside Hong Kong and Singapore.

 

“The new DTA has also deleted the controversial article of Technical Fee under the old treaty, and provides a more clear definition of permanent establishment,” he said.

 

“It is expected that HMRC’s counterpart in China, the State Administration of Taxation, will make a similar announcement shortly to effect the new DTA from China’s side,” he said.

 

The DTA is based on a 2011 treaty and will replace the existing double taxation convention between the UK and China, which came into force in 1984. It is largely consistent with the model double tax convention produced by the Office for Economic Co-ordination and Development (OECD). It updates provisions in relation to capital gains, and introduces more modern information exchange arrangements.

 

One of the major changes introduced by the new DTA is a reduction in the amount of withholding tax payable to the Chinese tax authorities when dividends are paid to UK investors with shares in Chinese companies. The agreement reduces the maximum dividend withholding tax rate from 10% to 5% where the investor directly beneficially owns at least 25% of the capital of the dividend-paying company.

 

The DTA will apply in respect of profit, income and capital gains arising in any tax year beginning on or after 1 January 2014 in China, according to HMRC. In the UK, it will apply to income and capital gains taxes for any year of assessment beginning on or after 6 April 2014; and to corporation tax for any financial year beginning on or after 1 April 2014.

 

Pinsent Masons

 

 

For further information, please contact:

 

John Christian, Partner, Pinsent Masons

[email protected]

 

Tom Cartwright, Partner, Pinsent Masons

[email protected]

 
Homegrown Tax Law Firms in China

 

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