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Double Taxation Agreement Ireland and China

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. Overall, 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 re-examine it and see if the myriad of minor changes will impact their current arrangements. China imposes a 10% tax on the repatriation of profits. Many double taxation treaties reduce dividend tax by 50%. 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.

In addition to the tax treaties mentioned above, China has also concluded Tax Information Exchange Agreements (TIEAs) with certain countries. For example, 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. China has also signed special agreements on international transport with some countries (e.g. B, Belgium, Chile, Denmark, Sweden and the United States). The above-mentioned contractual exemption, combined with the Irish national capital gains tax exemptions, provides for a tax-free exit from an investment made in China for companies resident in Ireland that sell shares in certain EU subsidiaries and the tax treaty. To qualify for the `participation exemption`, the company in which the shares are sold must be a tax resident and part of a business group in an EU Member State (including Ireland) or in a country with which Ireland has a double taxation agreement (including China). The Selling Irish Holding Company must have held at least 5% of the shares of the company in which the shares are sold for an uninterrupted period of 12 months ending in the last 24 months. 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. In order to benefit from the benefits of an applicable double taxation agreement, a company must be enacted. Here are the recommended steps: 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 corporation, withholding tax replaces another form of taxation (i.e., the tax to which a resident corporation would be subject). 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 case of a double taxation agreement, whereas it might otherwise be closer to 20%. .