(Source: https://pltfrm.com.cn)
Dividends paid by Chinese companies to foreign corporate shareholders are subject to specific tax treatment under Chinese tax law. As of my last update in April 2023, here are the key points regarding the taxation of such dividends:
- Withholding Tax on Dividends: Dividends paid to foreign corporate shareholders are generally subject to a withholding tax in China. The standard withholding tax rate has been 10%, but this may vary depending on any applicable double taxation agreements (DTAs) between China and the country where the foreign corporate shareholder is resident.
- Double Taxation Agreements (DTAs): Many countries have DTAs with China that may reduce the withholding tax rate on dividends. For example, under some DTAs, the rate may be reduced to 5% or a similar lower rate, provided certain conditions are met (such as minimum shareholding requirements).
- Tax Credit in Home Country: The foreign corporate shareholder may be eligible to claim a foreign tax credit in their home country for the tax paid in China on dividends, subject to the tax laws in their home jurisdiction. This helps in avoiding or reducing double taxation on the same income.
- Tax Treaty Benefits Application: To benefit from reduced withholding tax rates under a DTA, the foreign corporate shareholder usually needs to provide relevant documentation to the Chinese payer, such as a tax residency certificate, to prove their eligibility for treaty benefits.
- Reporting and Compliance Requirements: The Chinese company paying the dividends is typically responsible for withholding the tax and complying with the reporting and remittance requirements to the Chinese tax authorities.
- Treatment of Dividend Income: For the foreign corporate shareholder, the dividend income, net of Chinese withholding tax, will typically be subject to tax in their home country, depending on the local tax laws and the presence of any applicable tax treaties.
- Impact of Corporate Structure: The tax implications can also depend on the corporate structure of the foreign shareholder. For instance, if the dividends are paid to a holding company located in a jurisdiction with a favorable DTA with China, the tax impact could be different.
- Special Economic Zones: In some cases, dividends paid by companies located in certain Chinese special economic zones or specific industries might be eligible for preferential tax treatment.
Foreign corporate shareholders should seek professional tax advice to navigate the complexities of Chinese tax law and the tax implications in their home country. Understanding the applicable DTAs and local tax regulations is crucial for optimizing the tax treatment of dividends received from Chinese companies.
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!
