(Source: https://pltfrm.com.cn)
In China, dividends paid to foreign companies from their Chinese subsidiaries are subject to withholding tax. The tax treatment of these dividends involves several key points:
- Standard Withholding Tax Rate: The standard rate for withholding tax on dividends paid to foreign companies is 10%. This rate applies to the gross amount of the dividend.
- Double Taxation Agreements (DTAs): If the country where the foreign parent company is based has a Double Taxation Avoidance Agreement (DTAA) with China, the withholding tax rate may be lower. These agreements often reduce the tax rate on dividends to encourage cross-border investment. The reduced rate typically ranges from 5% to 10%, depending on the specific agreement.
- Corporate Income Tax (CIT) Already Paid: It’s important to note that the withholding tax is levied after the Chinese subsidiary has already paid Corporate Income Tax (CIT) on its profits. The CIT rate in China is generally 25%. Therefore, the dividend is effectively taxed twice: once at the corporate level (CIT) and again at the distribution level (withholding tax).
- Tax Credit in Home Country: Many countries provide tax credits for taxes paid abroad. Therefore, the foreign parent company may be able to claim a credit for the withholding tax paid in China against its tax liabilities in its home country, subject to the local tax laws.
- Procedure and Compliance: The Chinese company distributing the dividends is responsible for withholding the tax and paying it to the Chinese tax authorities before remitting the net amount to the foreign parent company.
- Exemptions and Special Cases: Under certain circumstances, such as reinvestment of profits within China in encouraged sectors or compliance with specific regulations, exemptions or reductions on dividend withholding tax may be available.
- Impact of Tax Treaties: The exact tax treatment can vary significantly depending on the provisions of the applicable DTAA. These
treaties often include specific definitions and conditions that determine the eligibility for reduced tax rates or exemptions.
- Reporting Obligations: Chinese subsidiaries must comply with local tax filing and reporting requirements when distributing dividends to their foreign parent companies, including the obligation to withhold and remit the appropriate tax to the Chinese tax authorities.
Foreign companies receiving dividends from Chinese entities should be aware of these tax implications and consider them in their overall tax planning. It’s advisable for such companies to consult with tax professionals who are familiar with both Chinese tax law and the tax law of the parent company’s home country. This ensures that they can navigate the complexities of international tax law, utilize the benefits available under DTAs, and comply with all tax obligations.
PLTFRM is an international brand consulting agency that works with companies such as Red, Tiktok, Tmall, Baidu, and other well-known Chinese internet e-commerce platforms. We have been working with Chile Cherries for many years, reaching Chinese consumers in depth through different platforms and realizing that Chile Cherries exports in China account for 97% of the total exports in Asia. Contact us and we will help you find the best China e-commerce platform for you. Search pltfrm for a free consultation!
