China and Chile Sign DTA in Deal that Broadens Investment Opportunities for Chilean Companies
By Andrea Tonini
On May 24, Premier Li Keqiang and a delegation of Chinese senior officials arrived in Chile. During the visit, China and Chile signed a double taxation avoidance agreement (DTA), updated their Free Trade Agreement and agreed on setting up an RMB clearing center in Chile.
China and Chile have developed a strong diplomatic relationship over the years. Chile was the first South American country to establish diplomatic ties with China, in 1970. It is also the first Latin American country to have signed a Free Trade Agreement with China, the other two being Peru and Costa Rica. This new DTA is therefore further evidence of the two’s strong bilateral ties, and will be a boon to companies from both countries.
Details of the Double Taxation Agreement
There was a symbolic side to China’s DTA with Chile, this being the 100th tax treaty China has signed with a foreign country. The agreement is in line with the latest international tax developments, since it deals with the topic of base erosion and profit shifting (BEPS) – one of the main issues discussed at the most recent G20 meeting. Thus, as China’s State Administration of Taxation (SAT) delegation pointed out, the DTA will balance the countries’ fiscal regulation in order to encourage Sino-Chilean foreign investments.
In addition, the People’s Bank of China (China’s central bank) announced on July 9 that the Chilean branch of China Construction Bank will be designated as offshore RMB clearing bank. This makes Chile the first Latin American country to have an RMB clearing center. In addition, a quota of RMB 50 million will be allocated to Chile in RMB Qualified Foreign Institutional Investor quotas (RQFII). The RQFII program allows stocks in China’s onshore markets to be purchased with offshore RMB. Furthermore, People’s Bank of China announced a three-year RMB 22 billion currency swap deal between the two countries.
To move the strong relationship between the two countries forward, a Memorandum of Understanding to upgrade the 2005 China-Chile Free Trade Agreement (FTA) has been signed. The amendment will mainly increase the number of goods covered, and provide new tax incentives. A joint working team is scheduled to start studying the terms and conditions of the upgraded FTA in August.
China – Chile Relations
Economic considerations have been a main driver in the relationship between the two countries. While Chile’s GDP of US$ 277.2 billion only amounts to 3 percent of China’s (US$ 9.240 trillion), Chile alone supplies 30 percent of China’s copper imports, an essential commodity in China’s construction boom over the past years. Now that China is planning to expand its focus on infrastructure development with the One Road One Belt initiative, the Middle Kingdom’s demand for Chilean copper is unlikely to dry up anytime soon. China’s imports of mining products from Chile, mainly copper and lithium, have driven the 26 percent increase in Chile’s exports over the last decade.
In other areas, trade between China and Chile has flourished as well, reaching US$ 34.1 billion in 2014 alone. Some of the most promising industries identified by observers are logging and fishery, as well as the renewable energy, infrastructure and automotive sectors, which are expected to grow by over 30 percent. Also, Chile is now China’s leading provider of bulk wine and its third largest source of bottled wine. Other major agricultural exports – including blueberries, cherries and apples – have been steadily increasing as well.
In many of these industries, Chile is competing for Chinese market share with Australia. Australia signed its Free Trade Agreement with China in late 2014, as did New Zealand in 2008 – another major trade competitor of Chile. At the same time, Chile is looking to maintain its lead in South America. Chinese investment and trade with the continent is rapidly picking up, with Chile, Brazil and neighboring Peru already having China as their biggest trade partner. Peru, too, has an FTA with China, signed in 2009.
“Chile has undeniably been on the forefront of South American economies facing China and took the lead in developing commercial ties”, states Riccardo Benussi, International Business Advisory Associate at Dezan Shira & Associates’ Shanghai office. “Chilean entrepreneurs and trade agencies have planted strong seeds deep in the arena of international trade with China and through the resilience of predominant sectors such as their refined copper, ore, wood pulp and acclaimed wines and salmon, trade figures are definitely looking bright, as more Chilean investors are setting up their operations in China, to beef up the already impressive exports to China that count for 23 percent of its global exports.”
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.
Tax, Accounting, and Audit in China 2015
This edition of Tax, Accounting, and Audit in China, updated for 2015, offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in China, as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who must navigate the complex tax and accounting landscape in China in order to effectively manage and strategically plan their China operations.
Using China’s Free Trade & Double Tax Agreements
In this issue of China Briefing, we examine the role of Free Trade Agreements and the various regional blocs that China is either a member of or considering becoming so, as well as how these can be of significance to your China business. We also examine the role of Double Tax Treaties, provide a list of active agreements, and explain how to obtain the tax minimization benefits on offer.
Double Taxation Avoidance in China: A Business Intelligence Primer
In our twenty-two years of experience in facilitating foreign investment into Asia, Dezan Shira & Associates has witnessed first-hand the development of China’s double taxation avoidance mechanism and established an extensive library of resources for helping foreign investors obtain DTA benefits. In this issue of China Briefing Magazine, we are proud to present the distillation of this knowledge in the form of a business intelligence primer to DTAs in China.
- Previous Article Le nuove Free Trade Zones, Parte III: Tianjin
- Next Article China Quakes As Mighty Bhutan Awaits in World Cup Qualifier