Applying for DTA Benefits in China
For foreign investors doing business in China, securing benefits under a double taxation avoidance (DTA) agreement is an important measure for reducing their tax burden as stipulated by Chinese tax law and thereby maximizing profit.
In addition to satisfying the specific requirements of a relevant DTA, certain administrative procedures must be followed according to Chinese laws and regulations, as outlined in Circulars 124 and 290.
The process of applying for DTA benefits can be quite onerous, requiring the applicant to submit a preferential tax treatment form as well as certain forms of documentation from the government of his/her country of tax residency.
In general, there are two pathways of administrative measures—either “approval” or “record-filing” with the relevant tax bureau—to be followed, depending on the type of relief being claimed.
Although the procedure for applying for DTA benefits in China can be somewhat tedious, it usually needs to be completed only once. Professional tax advice can help identify in detail which treaty benefits apply to your specific case.
Related Link IconRELATED: Understanding China’s Double Tax Agreements
The main benefits of DTAs as concerns foreign investors in China is their ability to reduce the tax burden on profits repatriated from a China entity (otherwise subject to 25% CIT). Under a DTA, expenses charged to a China-based entity such as for royalties, trademarks, patents and technology transfers can in many cases be treated with a reduced withholding tax rate of 10%.
The equation is clear: using a DTA can significantly reduce your overall profits tax bill.
This article is an excerpt from the October issue of China Briefing Magazine, titled “Double Taxation Avoidance in China: A Business Intelligence Primer.” In our twenty-two years of experience in facilitating foreign investment into Asia, Dezan Shira & Associates has witnessed first-hand the development of China’s double taxation avoidance mechanism and established an extensive library of resources for helping foreign investors obtain DTA benefits. In this issue of China Briefing Magazine, we are proud to present the distillation of this knowledge in the form of a business intelligence primer to DTAs in China.
For a consultation on DTA benefits available to your business and related application procedures, please contact Dezan Shira & Associates at tax@dezshira.com or visit http://www.dezshira.com.
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