VGD Chinese desk: tax flash - new tax treaty between China and Belgium

VGD Chinese desk:  tax flash - new tax treaty between China and Belgium

On 7 October 2009, a new double tax treaty and protocol on double taxation were signed by Belgium and China in Brussels.

After going through the necessary approval procedures, the new double tax treaty (DTA) has finally entered into force on January 4th, 2014.

The new treaty will replace the existing DTA, which has been in force since April 18, 1985.

Without going into the specifics we already argue that the new treaty is very beneficial, making Belgium an ideal partner for structuring pan-European investments.

Below we elaborate briefly on some key features.

Dividends

The new DTA reduces the withholding tax (WHT) rate on dividends from 10% to 5%, provided that certain conditions are met:

• The beneficial owner is a company (other than a partnership) which,
• Prior to the moment of the payment of the dividends, has been holding, for an uninterrupted period of at least 12 months,
• A directly shareholding of at least 25% in the company paying the dividend.

In all other cases, the WHT rate will remain at 10%.

Royalties

The withholding tax rate of royalties is reduced from 10% to 7% of the gross amount of the royalties.

Interest

The withholding tax rate of interest remains 10% unchanged compare to the former treaty.

In this respect it could be envisaged to channel Chinese financing via a company located in the Netherlands (provided that substance criteria are met). The Netherlands do not withhold any taxes on interest payments to non-residents. 

The Dutch company can easily be a subsidiary of a Belgian company.

Capital Gains on shares

In general, the new DTA adopts the standard capital gains clauses on the taxation of shares found in China’s recent DTAs.

Besides the clause stating that the sale of real estate companies can trigger tax locally, there is a specific clause regarding the sale of shares in case the sellers holds a certain percentage of the shares being sold.

Gains received by a Belgian company from disposals of shares in a Chinese company other than shares in which there is substantial, regular trading on a recognized stock exchange may be taxed in China if the Belgian resident (directly or indirectly) holds 25% or more in any 12-month period before disposal (and vice-versa).

Additional remark

Note that the new treaty only applies:

• for withholding taxes: all revenue received as of January, 1th 2015
• other income taxes (e.g. capital gains): revenue received during a taxable period starting on or after January, 1th 2015.

Please feel free to contact us if you have any questions.

newsletter_january_2014.pdf (811.73Kb)