Tax treaties may help reduce WHT burden under new CIT
Mar. 12 – As stated in the implementation rules for the new corporate tax law released late last year, withholding tax on dividend payment to non-residents is 10 percent. Because dividends derived by foreign investors were exempt from taxes under the old tax regime, foreign investors have see their worldwide tax burden increase and their expected returns from investment in China diminish.
However, businesses from countries with favorable tax policies and treaties with China are not affected by the 10 percent WHT.
According to the new law, from January 1, 2008, 10 percent of withholding tax shall be applied to the dividends that a non-resident company receives from a resident company, unless otherwise prescribed in the tax treaty with the relevant foreign government. If the rate in the tax treaty is higher than 10 percent, 10 percent of dividends shall be adopted according to current rules; if the rate in the tax treaty is lower than 10 percent, the rate in the tax treaty should be adopted.
Please click here for a list of all the tax rates on dividends from tax treaties.