• Service: Tax, Global Mobility Services, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 8/13/2014

Netherlands - New income tax treaty with China 

August 13:  A new tax treaty between the Netherlands and China, signed in May 2013, will enter into force on 31 August 2014.

With the ratification formalities in both China and the Netherlands having been completed, the treaty will apply to income received after 1 January 2015.

The new income tax treaty replaces a 1987 treaty.

Overview of new treaty provisions

Among the new tax treaty’s provisions are measures that allow participation dividends to be distributed to a parent company resident in the other country at a reduced rate of 5%.

The treaty also includes:

  • Anti-abuse provisions aimed at combating tax evasion
  • A new provision on the exchange of information between China and the Netherlands and rules on reciprocal assistance with regard to the collection of taxes
  • Changes to the conditions for determining whether a permanent establishment is present
  • Concerning dividends—a reduction of the withholding tax rate on participation dividends and the introduction of a “main purpose test”
  • Concerning interest and royalties—the withdrawal of the “tax sparing” credit and the introduction of a “main purpose test”
  • Concerning capital gains tax—a rule generally allocating the right to tax capital gains on the sale of shares in an entity that is a resident of one of the contracting states to the shareholder’s state of residence, unless the shareholder held a participation of at least 25% in that entity at any time during the 12 months preceding the sale

Read an August 2014 report prepared by the KPMG member firm in the Netherlands: New tax treaty between China and the Netherlands to enter into force on 31 August 2014

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