The new China-Russia Double Tax Treaty and its protocol entered into force on 9 April 2016, and will apply to income derived on or after 1 January 2017. The treaty contains some notable changes.
Zero withholding tax on interest. Unlike the current treaty, which provides a 10% withholding tax rate on interest, the new treaty allocates the exclusive right to tax interest to the resident state. That is to say, interest derived by a Russian tax resident will be no longer be subject to enterprise income tax (EIT) in China, or vice-versa. This provision is quite unusual and is rarely found in China’s tax treaties.
Reduced withholding tax on dividends and royalties. The treaty reduces the withholding tax on dividends to 5% if: (1) the beneficial owner is a company directly holding at least 25% of the capital of the company paying the dividends; and (2) this holding equals at least €80,000 (US$88,000). For all other situations, the applicable tax rate continues to be 10%. In addition, the new treaty lowers the withholding tax rate on royalties from the current 10% to 6%.
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Business Law Digest is compiled with the assistance of Baker & McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker & McKenzie by e-mailing Danian Zhang (Shanghai) at: danian.zhang@bakermckenzie.com
