China’s Tax, Investment, and Trade Agreements with Countries in the Middle East
China is deepening ties with countries in the Middle East, offering new opportunities for Middle Eastern businesses to expand into China. To facilitate business activity and investment, China has signed a range of tax agreements and bilateral investment treaties that offer fair treatment and protection for foreign investors. Moreover, China is in the process of negotiating free trade agreements with countries in the Gulf and the Levant. We look at the current and prospective China-Middle East tax, trade, and investment agreements that will help to foster further collaboration between the two regions.
China and countries in the Middle East have a long history of collaboration and trade, with the first avoidance of double taxation treaties signed as far back as 1989. The network of double taxation agreements (DTAs) and bilateral investment treaties (BITs) has continued to expand in the years since, helping to facilitate investment and trade between China and the region.
The Middle East is an important node in China’s Belt and Road Initiative (BRI), which has led to a dramatic increase in infrastructure investment in the region, and the Gulf countries in particular are a strategically important region for China’s energy security. In addition, China overtook the EU as the largest trading partner to the Gulf states in 2020, further cementing their strategic partnership and mutual interests.
With the deepening collaboration between China and the region, prospects for free trade agreements becoming a reality are also growing. Below we look at the current tax, investment, and trade agreements that have been signed and are under negotiation between China and countries in the Middle East.
China’s tax treaties with Middle Eastern countries
China has double taxation agreements (DTAs) with nine countries in the Middle East dating back to the early 1990s. Below are the DTAs that are currently in force, including the taxes covered by each of these DTAs.
|DTAs Between China and Middle Eastern Countries|
|Country||Effective date||China taxes covered||Contracting country taxes covered|
|United Arab Emirates (UAE)||July 1994||
|Saudi Arabia||September 2006||
The Chinese taxes covered in the DTAs vary slightly but generally include:
- Individual income tax (IIT)
- Income tax for enterprises with foreign investment and foreign enterprises
- Local income tax
Note that the “income tax for enterprises with foreign investment and foreign enterprises” and “local income tax” refer to historical taxes that are now no longer in place. China now imposes a nationwide CIT rate of 25 percent for all companies, whether foreign-invested, wholly foreign-owned, or local.
The DTAs all include a clause stating that the agreements will continue to apply to “any identical or substantially similar taxes which are imposed after the date of signature [of the DTA] in addition to, or in place of, the existing taxes referred to [in the DTA]”. The applicable Chinese taxes in the DTA are therefore now the standard CIT and IIT rates.
China implements a progressive IIT withholding rate, with different rates applied to resident and non-resident taxpayers. Broadly speaking, resident taxpayers refer to individuals who have a domicile in China, or individuals who do not have a domicile in China but have resided in China for 183 days or more cumulatively within a tax year. Non-resident taxpayers refer to individuals who do not have a domicile in China and have not resided in China, or individuals who do not have a domicile in China but have resided in China for less than 183 days cumulatively within a tax year.
China’s tax year runs from January 1 to December 31. Having a domicile in China means habitually residing in China due to household registration, family, and economic interests.
The IIT withholding rate for resident taxpayers is applied to the annual income and ranges from 3 percent for annual taxable incomes of below RMB 36,000 (US$5,192) to 45 percent for annual taxable incomes of over RMB 960,000 (US$138,448). For non-resident taxpayers, the IIT withholding rate is 3 percent for a monthly taxable income of below RMB 3,000 (US$433) and 45 percent for a monthly taxable income of over RMB 80,000 (US$11,537).
For a full explanation of China’s IIT withholding system, you can refer to our China Guide.
China imposes a nationwide 25 percent standard CIT rate on resident and non-resident enterprises with income-generating establishments in China. Reduced CIT rates are available based on the entity type, size, sector, or locations. For example, a CIT rate of 15 percent is available to qualified high and new technology enterprises (HNTEs), qualified advanced technology service enterprises (ATSEs), and companies operating in encouraged industries in certain development zones.
China’s bilateral investment treaties with countries in the Middle East
China has also signed bilateral investment treaties (BITs) with 12 countries in the Middle East.
|BITs Between China and Middle Eastern Countries|
|Country||Status||Date (effective or signed)|
|Jordan||Signed (not in force)||November 2001 (signed)|
|Bahrain||In force||April 2000 (effective)|
|Qatar||In force||April 2000 (effective)|
|Yemen||In force||February 1998 (effective)|
|Syria||In force||November 2001 (effective)|
|Lebanon||In force||July 1997 (effective)|
|Saudi Arabia||In force||May 1997 (effective)|
|Israel||In force||January 2009 (effective)|
|Oman||In force||August 1995 (effective)|
|Egypt||In force||April 1996 (effective)|
|UAE||In force||September 1994 (effective)|
|Kuwait||In force||December 1986 (effective)|
The BITs guarantee treatment to investors from the other contracting country that is equal to that afforded to investors in their own country. The BITs also include a most-favored-nation (MFN) clause, which requires the contracting parties to extend the same treatment to the other contracting party as they do to all other trade partners.
The contents of each BIT have minor variations, but generally cover the same types of investments, compensation for damages and loss, and dispute mechanisms, including neutral arbitration in an international court.
Taking the China-Oman BIT as an example, the protected investments include:
- Movable and immovable property as well as any other property rights in rem, including mortgages, liens, pledges, usufruct, and similar rights.
- Shares, stocks, and debentures of companies or other rights or interests in such companies and government-issued securities.
- Claims to money or to any performance that has an economic value associated with an investment.
- Copyrights, trademarks, patents, industrial designs and other industrial property rights, know-how, trade secrets, trade names and goodwill.
- Any right conferred by law or contract and any licenses and permits pursuant to law, including the right to search for, extract and exploit natural resources.
The BITs also prohibit the contracting countries from expropriating or nationalizing the assets of a foreign company within its jurisdiction, except for when there are extenuating domestic needs to do so and it is done against fair compensation.
For more information on how investors can benefit from China’s BITs, see our article here.
In addition to the bilateral agreements discussed above, 10 countries in the Middle East are also members of the WTO. This, by extension, means that China and these countries are parties to several multilateral trade and investment agreements, which provide additional protection for trade and investment between the regions.
Countries in MENA that are WTO members are:
Multilateral treaties under the WTO include:
- The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which requires WTO members to extend intellectual property (IP) rights to the IP owners in any member state or region. It includes a most-favored-nation (MFN) clause, guaranteeing equal treatment for IP rights protection for all member countries and regions, and offers dispute resolution and compensation mechanisms.
- Agreement on Trade-Related Investment Measures (TRIMs), which prohibits members from implementing investment measures that have the effect of restricting trade with other members, such as local content requirements (requirements for a company to use locally-produced goods or local services in order to operate in the market).
- General Agreement on Trade in Services (GATS), which guarantees MFN status to service providers of any WTO member (except governmental services such as social security schemes, public health, education, and services related to air transport).
Free trade agreements under negotiation
China has currently not signed a free trade agreement (FTA) with any country in the Middle East. Long-running negotiations on a trade deal with the Gulf Cooperation Council (GCC), comprised of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE, were ground to a halt after nine rounds of talks due to a series of diplomatic headwinds. However, following a visit by GCC representatives to Wuxi, Jiangsu province, China and the GCC pledged they would conclude negotiations on the FTA, with no specific timeline given.
In addition, negotiations on a trade deal between China and Israel began in 2017, with nine rounds of negotiation held so far. In May 2022, the Israeli Ambassador to China told China’s state news outlet CGTN that the FTA would be signed by the end of the year. Meanwhile, negotiations on an FTA with Palestine began in 2018 following the signing of a memorandum of understanding, however, little progress appears to have been made since then.
Dezan Shira & Associate’s Dubai Office opens in September 2022. We will assist investors throughout the Middle East in understanding and investing in markets in China, ASEAN, and India. For information on investment opportunities for Middle East companies in China and help with market entry, contact us at email@example.com.
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