If a non-Chinese company charges a Chinese company for the services provided, the non-Chinese company is subject to withholding tax. As a non-resident company, withholding tax replaces another form of taxation (i.e. the taxation to which a resident company would be subject to tax). The withholding tax is usually 10 to 20% of the invoice amount. Double taxation treaties often reduce this amount by almost 50%. This treatment of withholding tax is useful for multinational corporations with affiliates in China. For example, if a Chinese subsidiary pays a royalty to a foreign subsidiary for the use of the intellectual property of multinationals, the withholding tax is often reduced to about 10% in the presence of a double taxation agreement, whereas it might otherwise be closer to 20%. In order to benefit from the benefits of an applicable double taxation agreement, a company must be enacted. Here are some recommended measures: China`s double taxation policy has become more extensive and robust in recent years. Double taxation relief can be covered by China`s extensive network of double taxation treaties or by unilateral relief policies. The provisions of these double taxation treaties are particularly useful, not only for Multinational Corporations and Chinese tax residents, but also for foreign companies that charge services to a China-based company (which would be subject to withholding tax).

The majority of China`s double taxation treaties have been drafted and signed in recent years and therefore cover IT, Internet and communication issues. If a tax resident derives income from a country that has not signed a double taxation agreement with China, the taxpayer is entitled to a tax credit for tax paid abroad on that income. The tax credit may not exceed the amount otherwise payable. In the event that the tax credit exceeds the limit, it can be presented for five years. An indirect tax credit is also allowed. China has largely signed double taxation treaties with the aim of promoting economic integration and signaling a continued friendship with foreign investment. Each tax treaty determines whether the right to tax belongs to the country of origin or the country of residence. China`s tax authorities are carefully examining trade and cross-border agreements between foreign subsidiaries and addressing the tendency of multinationals to use related party transactions to reduce their taxable income. It is recommended that the Chinese company demonstrate its express intention to use the provisions of double taxation treaties. This can help dispel concerns from tax authorities that the company wants to use agreements with related parties to reduce its taxable income. China imposes a 10% tax on the repatriation of profits. Many double taxation treaties reduce dividend tax by 50%.

The United States has tax treaties with a number of countries. Under these contracts, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate or are exempt from U.S. tax on certain items of income they receive from sources located in the United States. These reduced rates and exemptions vary by country and income. Under the same conventions, U.S. residents or citizens are taxed at a reduced rate or are exempt from foreign taxes on certain items of income they receive from foreign sources. Most income tax treaties include a so-called “savings clause” that prevents a U.S. citizen or resident from using the provisions of a tax treaty to avoid taxing income withheld in the United States. If the contract does not cover a certain type of income, or if there is no agreement between your country and the United States, you must pay income taxes in the same way and at the same rates as indicated in the instructions for the corresponding U.S. tax return. Many individual states in the United States tax revenue received in their states.

Therefore, you should contact the tax authorities of the state from which you receive income to find out if your income is subject to state tax. Some U.S. states do not comply with tax treaty provisions. This page contains links to tax treaties between the United States and certain countries. More information on tax treaties is also available on the Department of Finance`s Tax Treaty Documents page. See Table 3 of the Tables of the Tax Convention for the general date of entry into force of each agreement and protocol. Non-TRE without branches or places of business in China are subject to a WHT of 10% on gross income from dividends, interest, real estate rentals, royalties and other passive income from China, unless they are reduced by a tax treaty. In 2017, China signed the OECD Multilateral Instrument, which will significantly update almost half of China`s double taxation treaties. One of the updates will be the introduction of the objective criterion of the anti-abuse principle.

As the signing of this agreement entails many minor changes, it is important for companies that have already reaped the benefits of one of China`s double taxation treaties to look at it again and see if the myriad of minor changes will impact their current arrangements. .