China: Tougher Rules For Claim For Tax Treaty Benefits In China

Last Updated: 17 September 2009
Article by Fuli Cao

On August 24, 2009, the State Administration of Taxation issued Administrative Measures for Claims for Tax Treaty Benefits by Nonresidents (Trial Implementation), Guo Shui Fa [2009] No. 124 (the "Measures"). The Measures provide guidance for application, filing, and review procedures for claims for tax exemption or reduced tax rates under double taxation treaties between China and other countries and regions. The Measures apply to the tax liabilities incurred on or after October 1, 2009. They also apply to a tax liability incurred prior to October 1, 2009, and for which the claim for treaty benefits is made on or after October 1, 2009. The Measures govern the implementation of all tax treaty benefit claims except for those provided under international transportation provisions of tax treaties.

Approval Required for Claims for Treaty Benefits for Dividend, Interest, Royalty, and Gain on Transfer of Properties

Application for Treaty Benefits. To enjoy a tax exemption or reduced tax rate under treaty provisions concerning dividends, interest, royalty, and gain on transfer of properties, a nonresident must apply to the relevant tax authorities for such benefits. A taxpayer must submit required application forms and a resident certificate issued by the competent authority of the treaty country or region. The resident certificate must be dated on or after January 1 of the year immediately prior to the year of application. The taxpayer also needs to submit documents that evidence its right to the payment, such as property ownership certificate, contract, agreement, payment voucher, or certificate issued by an intermediary or notary agent. If a nonresident who is eligible for treaty benefits paid tax at the normal rate according to domestic law, the nonresident may apply for treaty benefits and claim a tax refund within three years from the date of tax payment.

Review and Approval. A nonresident should submit the application to the tax authority in charge, which in general is the district, county, or city tax bureau in charge of the payer. However, not all of those tax bureaus have the right to approve an application for treaty benefits. Tax bureaus at the provincial level can designate certain tax bureaus as approval authorities within their jurisdictions. If a tax bureau in charge is not an authorized bureau, it will forward the application to the authorized tax bureau. An authorized tax bureau should approve or reject the application within a prescribed review period. The review period is 20 working days if the approval authority is a tax bureau at the district and county level, 30 working days if the approval authority is a tax bureau at the prefecture and city level, and 40 working days if the approval authority is a tax bureau at the provincial level. If the tax authority cannot make a decision within the above review period, it can extend the review period by an additional 10 working days upon the approval of the tax bureau head and by delivering a written notice to the taxpayer. If the tax bureau has not issued a written notice to the taxpayer within the allowed review period, including the extension of time, the bureau is deemed to have approved the treaty benefit claim. If an authorized tax bureau is not able to determine whether the nonresident can enjoy a treaty benefit, it may notify the taxpayer in writing of temporarily not granting the treaty benefit and reasons therefor. In such situation, the tax bureau must report it to the higher level tax bureau and, if necessary, commence mutual agreement or information exchange procedures with the relevant treaty country or region.

Validity Period. An approval for a treaty benefit item is valid for three calendar years (i.e., the remaining period of the current year plus the following two calendar years) for the same nonresident and same type of benefit under the same tax treaty. For example, if a foreign company receives an approval for a reduced withholding tax rate on a dividend payment made by a resident enterprise under a tax treaty, the foreign company can enjoy the reduced rate for subsequent dividend payments from the same resident enterprise within the valid period without additional application. However, the foreign company must separately apply for a reduced tax rate if it receives dividends from another resident enterprise. A similar situation applies if a foreign company obtains approval for a reduced tax rate on interest on a loan paid by a resident enterprise. The benefit approved only applies to the interest on the same loan within the valid period. The foreign company must separately apply for treaty benefit for interest income if it subsequently makes additional loans to the same resident enterprise. With regard to royalties, the approved benefit only applies to the royalty payments under the same licensing agreement. In addition to the initial application and approval, during the implementation of a treaty benefit approval, the taxpayer or withholding agent must file a form—Report of Implementation of Nonresident's Treatment Upon Approval under Double Taxation Agreement—to report the actual implementation status.

Filing Required for Claims for Other Tax Treaty Benefits

To enjoy treaty benefits other than those for dividend, interest, royalty, and gain on transfer of properties, a nonresident does not need to obtain a specific approval. However, prior to a tax liability occurring or at the time of the tax filing, the nonresident or a withholding agent must file an information reporting form—Nonresident's Claim for Treatment under Double Taxation Agreement—together with a resident certificate issued by the competent authority of the treaty country or region and other documents that may be required by the tax authorities. The resident certificate must be dated on or after January 1 of the year immediately prior to the year of filing.

According to China tax treaties, the business profits of a foreign enterprise from a treaty country generally will not be taxable in China unless the foreign enterprise has a permanent establishment in China and the business profits are derived from the permanent establishment. A "permanent establishment" is a fixed place of business through which the business of an enterprise of a treaty country is wholly or partly carried on. For the provision of services by a foreign enterprise in China, the foreign enterprise will be considered to have permanent establishment in China if the services rendered by the foreign enterprise through employees or other personnel engaged by the foreign enterprise continue within China for a certain period of time. Most treaties provide for a period or periods aggregating more than six months within any 12-month period.

Many foreign companies from treaty countries provide services in China, which may include undertaking engineering or installation projects, performing technical service contracts, and providing various consulting services. According to the Measures, the claims for benefits under treaty provisions concerning business profits and permanent establishment do not require approval and are only required for filing of the above information with the tax authority in charge. However, a tax certificate is required for remittance of foreign exchange of more than US$30,000. If a foreign company files a claim for tax exemption because its activities do not constitute a permanent establishment in China, the tax authority in charge most likely will conduct a substantial review of filing documents for treaty benefit claim before issuing a tax clearance certificate. As it is not clear how to account for the six-month (or more number of months in some treaties) period under the current tax law and regulations, it may not be easy for the tax authorities to agree to the no-permanent-establishment position of the foreign company in some situations. Accordingly, it may be difficult to implement "merely filing for records" as provided in the Measures in those situations.

Record Retention and Tax Audit

If a taxpayer has received tax treaty benefits, the taxpayer and withholding agent must maintain documents and records in relation to the treaty benefit claims for at least 10 years. The tax authorities may randomly select taxpayers (for both approved cases and information filing cases) for review and reconfirmation of eligibility of treaty benefits. If the tax authorities find that a taxpayer is not eligible for the treaty benefits, provides false information in the application or information filing, or cannot be determined for eligibility of treaty benefits, the tax authorities may withdraw the approval or require a reapplication for treaty benefits or other corrective actions. In some circumstances, the tax authorities may impose penalties on taxpayers and withholding agents.


China has strengthened administration of nonresident tax collections. In addition to the Measures, several other tax circulars concerning nonresidents were issued recently. In implementing the review procedures for claiming tax treatment under double taxation treaties, the tax authorities may apply anti-avoidance provisions as provided in the tax law, regulations, and other tax circulars and deny a claim for treaty benefits. To receive tax treaty benefits, multinational companies should not only make accurate and complete initial applications or filings but should also ensure proper information filings during the implementation of an approved treaty benefit claim.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.