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How to Avoid Double Tax from China and Your Home Country?

HiTouch 18 December 2018

Our previous article regarding resident taxpayers has ignited many concerns among foreign individuals, many of them are worried about whether they will be levied double tax by China and their home country under China's upcoming new individual income tax system.


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What's more, the launch of Common Reporting Standard (CRS) gives the tax authorities of both countries a greater ability to exchange taxpayer information and to exchange information on a wider range of taxes. It also provides that neither tax authority can refuse to provide information solely because it does not require the information for its own domestic purposes, or because the information is held by a bank or similar institution. So, under these complex tax protocols, can you avoid double tax from China and your home country?


We have to make it clear at the beginning of the article, double tax is applicable to many forms of tax – including corporate income tax, individual income tax, withholding taxes, and dividend taxes amongst others, as a result, both foreign individuals (resident taxpayers) and enterprises( enterprise resident taxpayers) may get involved in it if the person stay in China for a prolonged period of time, or the company lawfully incorporated in China, or lawfully incorporated pursuant to the laws of a foreign country (region) but where actual management functions are conducted in China.



Image: internationalinvestment


Understanding Double Tax

Double taxation is the levying of tax by two or more jurisdictions on the same declared income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes). Double liability is mitigated in a number of ways, for example:


  • the main taxing jurisdiction may exempt foreign-source income from tax,

  • the main taxing jurisdiction may exempt foreign-source income from tax if the tax had been paid on it in another jurisdiction, or above some benchmark to not include tax haven jurisdictions.

  • the main taxing jurisdiction may tax the foreign-source income but give a credit for foreign jurisdiction taxes paid.


The term "double taxation" can also refer to the double taxation of some income or activity. For example, in some jurisdictions, corporate profits are taxed twice, once when earned by the corporation and again when the profits are distributed to shareholders as a dividend or other distribution.


Is Your Country On The List Of China's Tax Treaty With Over 100 Countries?

Actually, China has signed over 100 Agreement on Avoidance of Double Taxation (DTA), more than 10 tax information exchange agreements (TIEA), and 1 multilateral convention of mutual administrative assistance in tax matters. The DTA's of China basically followed the Model Treaty Convention of the Organisation for Economic Co-operation and Development (OECD).


China has taken an assertive view when it comes to participating in Double Tax Agreements (DTA) with other nations – it now has 102 such treaties, many of them recent. Terms of the protocol and the listed countries are constantly keeping updated. Here are the latest details of the DTA are available at the website of the State Administration of Taxation.



Image: State Administration of Taxation of The People's Republic of China


There are mainly four effects of signing Double Taxation Avoidance Agreement.


  1. Eliminate the double taxation, decrease the tax cost of "going global" enterprises.

  2. Increase the certainty of taxation, decrease the risk of cross-border taxation.

  3. Decrease the tax burden of "going global" enterprises in the host country, improve the competitiveness of those enterprises.

  4. When taxation disputes occur, the agreements can provide bidirectional consultation mechanism, solv