(Source: https://pltfrm.com.cn)
In China, foreign companies that do not have offices or business locations in the country (referred to as non-tax resident enterprises, or non-TREs) are subject to a withholding tax on various types of passive income sourced in China. This includes income generated from dividends, interest, property leases, royalties, and other similar types of passive income. The standard withholding tax rate for such income is set at 10%.
However, this rate can be reduced under the terms of Double Taxation Agreements (DTAs) that China has entered into with numerous countries. These agreements often specify lower tax rates for dividends, for instance, if certain conditions are met. One common condition in these agreements is that the beneficial owner of the income must be a company holding a significant portion of the capital (usually at least 25%) of the company paying the dividends. The specific tax rate reduction depends on the terms of the DTA between China and the country where the company receiving the income is a tax resident.
For example, under some DTAs, such as those with countries like Belgium, France, the Netherlands, and the United Kingdom, the withholding tax rate for dividends can be reduced to 5% if the beneficial owner holds a sufficient percentage of the company’s capital. However, the actual application of these reduced rates can be complex and may require careful consideration of the company’s ownership structure, including the ultimate beneficial ownership.
It’s also important to note that when foreign companies based in China wish to repatriate dividends, there are specific conditions they must satisfy, such as settling outstanding tax liabilities and maintaining a reserve fund. Additionally, the process of distributing dividends involves several steps, including preparation of various documents, applications for lower withholding tax rates as per DTAs, and compliance with local banking and tax regulations.
Given the complexity of tax laws and international agreements, foreign companies operating in China or receiving income from sources within China should consult with tax professionals to understand the specific implications for their business operations and to ensure compliance with all relevant tax laws and regulations
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!
