Global Tax Alert | 4 June 2013

Netherlands and China sign new tax treaty

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On 31 May 2013, the Kingdom of The Netherlands and the People's Republic of China signed a new income tax treaty in Beijing. When ratified, the new treaty will replace the current treaty of 1987.

The new treaty reduces the dividend withholding tax rate to 5% if the beneficial owner directly holds at least 25% of the capital of the company paying the dividends, and to 10% if the beneficial owner holds less than 25% (subject to the ”main purpose” test). The current treaty only provides for a reduction to 10%.

Other main characteristics of the new treaty include:

  • Maximum of 10% interest withholding tax;
  • Maximum of 10% royalty withholding tax. For the use or right to use of industrial, commercial, or scientific equipment, effectively a 6% royalty withholding tax;
  • Only capital gains resulting from the alienation of non-publicly traded shares in a company in which (indirectly) a participation of 25% or more was held, may be taxed in the state where that company has its residency; and
  • General (broad) anti-abuse provision which allows both parties to apply domestic anti-abuse rules, insofar these rules do not give rise to taxation contrary to the treaty.

The treaty needs to be formally approved by both countries according to their local procedures, and will not enter into force earlier than 1 January 2014.

For additional information with respect to this Alert, please contact the following:

EY Belastingadviseurs LLP, Amsterdam
  • Johan van den Bos
    +31 88 407 1457
EY Belastingadviseurs LLP, Rotterdam
  • Michiel Swets
    +31 88 407 8517
Ernst & Young LLP, Belgium-Netherlands Tax Desk, New York
  • Dirk Stalenhoef
    +1 212 773 3390
Ernst & Young LLP, Belgium-Netherlands Tax Desk, Chicago
  • Frank Schoon
    +1 312 879 5508
Ernst & Young (China) Advisory Limited, Belgium-Netherlands Tax Desk, Shanghai
  • Bas Leenders
    +86 21 2228 4782
Ernst & Young LLP, Dutch Tax Desk, London
  • Jelger Buitelaar
    +44 20 795 15648

EYG no. CM3503