• Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 1/17/2014

China - Tax treaty with United Kingdom effective beginning 2014 

January 17: An income tax treaty between China and the United Kingdom  entered into force on 13 December 2013, and is effective beginning 2014. The new tax treaty replaces the 1984 income tax treaty between China and the United Kingdom.

The new tax treaty:

  • Provides for lower rates of dividend and royalties withholding tax, and for an exclusion of certain capital gains on minority shareholdings from capital gains tax
  • Tightens up the permanent establishment (PE) provisions, allowing for greater certainty in their application
  • Introduces new anti-abuse provisions and facilitates the application of domestic anti-avoidance measures

KPMG observation

Tax professionals in China anticipate that with the new income tax treaty, there may be some restructuring of investment arrangements, from the UK into China, that may follow from the increased tax efficiency of direct investments resulting from the new treaty provisions, and that there could be greater advantages going forward in using UK holding companies for China-EU investment flows.

Read a January 2014 report [PDF 1.26 MB] prepared by the KPMG member firm in China: New China-United Kingdom double tax agreement comes into effect

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