UK Tax Treaties with China

E-mail: lon4ww@evershinecpa.com
Ms. Anny Lin, speak both English and Chinese.
WeChat: annylin8008
Skype: annylin8008

CN-Q-10:
中國母公司在英國是否可以依DTA申請沒有常設機構(PE)下零稅率?
China Parent Company, can apply for zero tax rate without PE under DTA in the United Kingdom?

CN-A-10:
Yes.
China has DTA with the United Kingdom, and if China’s Legal Resident company is without PE (Permanent Establishment), it will be redeemed as “non-United Kingdom Domestic Sourced Income”.
That means the United Kingdom will levy zero-tax.
However, China Legal Resident company still needs to send a zero-tax application to the United Kingdom Tax Bureau for being approved.

CN-Q-20:
中國母公司在英國設立了英國子公司， 中國母公司替子公司服務收入能否申請零稅率?
When China Parent Company as an Investor, set up a United Kingdom subsidiary, and provide services from China to United Kingdom Subsidiary, can apply for zero tax rate without PE under DTA in the United Kingdom?

CN-A-20:
According to DTA Article 5 item 7, A United Kingdom subsidiary will not be treated as PE of China Parent company as an investor because it is a separate legal entity. That means if a United Kingdom Subsidiary pays service fee to China Parent Company through a service contract signed between the subsidiary and China Parent company as an investor, China Parent Company can apply zero tax.

As for if the paid amount is reasonable, it will get involved TP (Transfer Pricing) judgment by the United Kingdom Tax Bureau.

CN-Q-30:
英國依DTA沒有PE下零稅率申請的程序為何?
What is the procedure for the United Kingdom to apply for zero tax rate under DTA without PE?

CN-A-30:
Applications for relief at source from UK withholding tax may be made to the HMRC Double Taxation Treaty Team, using the forms which can be retrieved in HMRC.

https://www.gov.uk/government/publications/international-tax-double-taxation-treaty-relief-form-dt-company

1. Form DT-Company
2. Send the completed form DT-Company to the taxation authorities of the company’s country of residence. By doing this, you can consent to the residence’s tax authorities certifying to HMRC that the company is resident in the other country within the meaning of the Double Taxation Convention between the UK and that country.
3. Next, the taxation authorities of the country of residence will then either send the certified form direct to HMRC or return the form to you to send to HMRC.
4. In some cases, the residence’s tax authorities may not wish to stamp and sign the form DT-Company. If so, please ask them to provide a separate ‘standalone’ certificate to confirm that the company is resident for tax purposes in that country within the meaning of the Double Taxation Convention with the UK.

CN-Q-40:
中國母公司有英國來源所得的各項所得扣繳稅率為何?
When China Resident company has United Kingdom domestic sourced income, what are the withholding tax rates for various incomes in the United Kingdom?

CN-A-40:
China has DTA with the United Kingdom, and if you are with PE (Permanent Establishment) in the United Kingdom, your income will be considered as United Kingdom domestic sourced income.
As for levying Tax Rate, please be aware:
if United Kingdom Tax rate > DTA Rate, adopt DTA Rate; if United Kingdom Tax rate < DTA Rate, adopt United Kingdom Rate.

If DTA is applied, the DTA rates between China and the United Kingdom are as below:

*The withholding tax rate under domestic law may apply rather than the treaty rate where the domestic law rate is lower than the treaty rate.

CN-Q-50
當中國稅務居民有英國來源所得，依DTA優惠稅率申請的程序為何?
When China Tax Resident having United Kingdom domestic sourced income, what is United Kingdom’s application procedure based on the DTA preferential tax rate?

CN-A-50:
Applications for relief at source from the UK withholding tax may be made to the HMRC Double Taxation Treaty Team, using the forms which can be retrieved in HMRC.

https://www.gov.uk/government/publications/international-tax-double-taxation-treaty-relief-form-dt-company

1. Form DT-Company
2. Send the completed form DT-Company to the taxation authorities of the company’s country of residence. By doing this, you can consent to the residence’s tax authorities certifying to HMRC that the company is resident in the other country within the meaning of the Double Taxation Convention between the UK and that country.
3. Next, the taxation authorities of the country of residence will then either send the certified form direct to HMRC or return the form to you to send to HMRC.
4. In some cases, the residence’s tax authorities may not wish to stamp and sign the form DT-Company. If so, please ask them to provide a separate ‘standalone’ certificate to confirm that the company is resident for tax purposes in that country within the meaning of the Double Taxation Convention with the UK.

Summary of TAX TREATY between the United Kingdom and CHINA

The Government of the United Kingdom of Great Britain and Northern Ireland and The Government of The People’s Republic of China concluded and signed an Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (Double Taxation Agreements, DTA), on 27 February 2013 and in force on 13 December 2013.

Permanent Establishment

Article 5 states the term permanent establishment (PE) means a fixed place of business which generally includes the followings:
*A place of management
*A branch
*An office
*A factory
*A workshop
*The furnishing of consultancy services through employees or other personnel for periods aggregating more than 183 days.

Withholding Tax

*Article 7 of DTA between the United Kingdom and China explained, the United Kingdom may not tax payments on business profits rendered by China corporations unless it is attributable to the permanent establishment situated in the relevant territory.

*In Article 10, dividends paid by a United Kingdom Resident enterprise to China Resident enterprise, the tax charged shall not exceed 5% if China enterprise holds directly at least 25% of the capital of United Kingdom enterprise. 15% on dividend paid out from immovable property within the meaning of Article 6 of DTA. In other cases, tax charged shall not exceed 10%.

*Article 11 states that where the beneficial owner of the interest is a non-resident, shall be taxed in the territory in which it arises at the rate not exceeding 10% of the gross interest. The rate of withholding tax under domestic law may apply rather than the treaty rate where the domestic law rate is lower than the treaty rate.

*Article 12 explained royalties means payment for the use of, or the right to use, any copyright of literary, artistic, or scientific work including cinematographic films, or films or tapes for radio or television broadcasting, any patent trademark, design or model, plan, secret formula or process or information (know-how) concerning industrial, commercial, or scientific experience. Royalties for the right of use of industrial, commercial, or scientific equipment, effective rate of 6% (10% x 60% of the royalties) of the gross amount of these payments.

*Technical services are covered by the business profits in Article 7. United Kingdom corporations may not tax payments for technical services rendered by a China enterprise unless it is attributable to PE. No withholding tax is anyway imposed on payments made to non-residents for services under UK domestic law.

*A professional service or other activities provided by individuals of an independent character was explained in Article 14. United Kingdom corporations may not tax payments for professional service rendered by a China resident unless the China resident has a fixed place or stay in the United Kingdom for 183 days or more. An independent profession includes physicians, lawyers, engineers, architects, dentists, and accountants. No withholding tax is anyway imposed on payments made to non-residents for services under UK domestic law.

Elimination of Double Taxation

Article 22 of the DTA states that double taxation shall be eliminated by allowing tax credit to be made available to the home resident territory. It shall be credited against the tax levied in the first-mentioned territory on that resident. However, the amount of credit shall not exceed the amount of the tax in the first-mentioned territory.

Exchange of Information

Article 26 states that the competent authorities of the territories shall exchange such information relevant to the provision of this Agreement.

Please be aware of below Warning:
The above contents are digested by Evershine R&D and Education Center in October 2021.
Regulations might be changed as time goes forward and different scenarios will adopt different options.
Before choosing options, please contact us or consult with your trusted professionals in this area.

Contact Us

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E-mail: lon4ww@evershinecpa.com
Ms. Anny Lin， in both English and Chinese.
WeChat: annylin8008
Skype: annylin8008

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Email address: dalechen@evershinecpa.com
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(version: 2024/07)

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