Germany-China Double Tax Treaty

Germany’s double tax agreement with China

Germany and China have a long history of trading relations which have led to the conclusion of their first double taxation agreement in 1985. In order to enhance economic relations, the two contracting states have renewed their treaty last year. The new Germany-China double tax treaty was enforced beginning with January 1^st, 2015. The taxes covered by the Germany-China double taxation agreement are:

• -          the personal income tax, the joint ventures and foreign investment income tax and the local income tax in China,
• -          the personal income, the corporate, the capital gains and trade taxes in Germany.

The agreement will also apply to other similar taxes levied in both countries. Additionally, German and Chinese tax authorities will notify each other about changes in their taxation systems that could affect the agreement.

Changes in the Germany-China double tax treaty

One of the most significant changes brought to the Germany-China double taxation convention refers to permanent establishments. If under the old treaty any construction site, place of management or other assemblies in Germany or China were considered permanent establishments if operating in one of the two countries for at least six months, under the current agreement these entities are deemed permanent establishments after operating for at least twelve months. The new Germany-China double taxation agreement also specifies that service activities lasting for more than 183 days in a calendar year may also be constituted as permanent establishments.

Our German lawyers can provide you with more information related to permanent establishment under the new double tax treaty with China.

 Tax rates under the Germany-China double taxation treaty

The new double tax treaty between Germany and China also brings reduced tax rates for dividends and royalties. The withholding tax on dividends was reduced from 10 to 5% if the recipient owns at least 25% of the voting shares in the Chinese or German company paying the dividends. The tax applied to royalties on the use of industrial, scientific or commercial equipment has been reduced from 7 to 6%, while the taxation of interests remains the same: 10%.

The new Germany-China double taxation agreement also provides for a tax relief from the capital gains tax under certain conditions.

For complete information about all the changes brought in the new double tax agreement with China, please contact our law firm in Germany.