China Germany Double Tax Agreement

Our German lawyers can provide you with more information about establishing them under the new double taxation agreement with China. After several rounds of negotiations, a new double taxation agreement (“new DTT”) was signed on 28 March 2014 between the governments of the PRC and Germany to replace the old DTT signed by both governments on 10 June 1985. The new DTT contains new elements of a typical modern double taxation treaty and has made several important changes to the old one. The new DTT will enter into force on the 30th day after the two countries have followed their respective national ratification procedures and notified each other, which may still take some time. Below we highlight as a reference the most important changes of the DTT: Germany and China have a long history of trade relations that led to the conclusion of their first double taxation convention in 1985. The new double taxation agreement between Germany and China also does not provide that service activities that last more than 183 days per calendar year may also be incorporated as permanent establishments. In addition, compared to other DTTs signed with other countries, the new DTT intentionally adds a paragraph: “15% of the gross amount of dividends where such dividends are paid on income or profits derived directly or indirectly from immovable property within the meaning of Article 6 from an investment vehicle which distributes the major part of such income or profits per year and from which the income or profits of such property are exempt”. It mainly takes into account dividends through integrated investment instruments that target real estate, it is obviously rather closed to the real estate result. In accordance with the principle of article 6, the State of origin should have exercised an infinite power of taxation. Although the new gross amount of dividends amounts to 15%, in accordance with the Agreement and national law, which emphasises the principle of taxable person, the effective tax rate in non-resident companies is 10%, as provided for in the `implementing regulations of the Law on corporation tax`, as for non-resident individual income, it is collected at 15%.

The new double taxation agreement between Germany and China also reduces the tax rates on dividends and royalties. The withholding tax on dividends has been reduced from 10% to 5% if the beneficiary holds at least 25% of the shares of the Chinese or German company that are toying the dividends. The tax on fees for the use of industrial, scientific or commercial equipment has been reduced from 7% to 6%, while the tax on interest remains the same: 10%. 3. Maritime and air transport The new DTT has added a subsection subsection, under the item navigation and air transport, to define the extent of the benefits derived from shipping and air transport. 4. Related companies The “Associated Enterprises” clause aims to address transfer pricing (“TP”) issues. In other words, the adjustment of taxable profits made by a contracting country for offsetting reasons is allowed. . .

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