New China-UK Double Tax Agreement

New UK-China Double Tax Agreement (DTA) paves the way for closer economic ties

The new UK-China DTA took effect in China from January 2014 and in the UK from April 2014.  It introduces many preferential benefits for both nations and will lead to closer economic and business ties.

Main points under the DTA  

Dividend withholding (WHT) tax cut to 5{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} from the previous 10{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} for corporate investors beneficially owning at least 25{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} of the capital of the dividend-paying company.  This is more relevant for UK investors into China because the UK does not impose a general dividend withholding tax anyway.

2.   Interest and royalty payments:  the maximum WHT rate remains at 10{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d}, with a reduction from   7{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} to 6{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} on WHT on royalties from the use of, or right to use, industrial, commercial or scientific equipment.

3. Capital gains tax:  UK residents disposing of  holdings under 25{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} in Chinese companies (except property rich companies) get complete relief from capital gains tax.  Previously China imposed a 10{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} WHT on such gains.

There are also benefits and concessions in relation to “fees for technical services” under the new DTA.  The UK now joins a small exclusive group of countries to whom China extends “most preferred” treaty partner status.

Why the UK is now very attractive to Chinese investors

1.  UK International Holding Company (IHC):  exemption from capital gains on disposal of shares in underlying Chinese / other subsidiaries provided the holding is at least 10{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} and held for 12 months and the group as a whole remains a trading group.  Dividends from Chinese/other subsidiaries exempt in the hands of the UK IHC.  No UK withholding tax when the UK company pays a dividend, even to a tax haven jurisdiction.

2. UK Financing/private equity companies: The UK gives very generous interest deductions on loans to finance foreign equity investments making the UK an attractive jurisdiction for Chinese investment into the EU as well as investment from the EU into China.

3. EU non-discrimination benefits: by establishing a UK company to take advantage of the EU Merger Directive,  Parent-Subsidiary directive, Interest & Royalty Directive and so on.

4. A UK holding company is not caught by China’s Controlled Foreign Company (CFC) rules as the UK is a “white list” jurisdiction.


The new UK-China DTA confers “preferred nation” status in tax treaty terms to the UK and will  encourage use of UK companies and structures for Chinese investment into the EU and vice-versa, thus leading to closer economic ties between the two nations.  For further information regarding tax structuring trade with or investment into the UK please contact us.