New Double Tax Agreement between Switzerland and China

in Tax, 27.09.2013

Switzerland and China have signed a new Double Tax Agreement (DTA). The new DTA replaces the agreement applicable since 1991. With the reduction of Withholding Taxes (WHT) from 10% to 5%, Switzerland will become one of the most favourable countries in Europe, both for investments into China as well as for investments from China to Europe.

Most important features of the new agreement include:

  • Reduction of WHT on Dividends from 10% to 5% if the company receiving the dividends holds a stake of at least 25% in the distributing company
  • Reduction of WHT on royalties from 10% to 9%
  • WHT on interest payments remains at 10%
  • Thresholds for permanent establishments have been adjusted to twelve month for building and construction sites and installation projects as well as to 183 days in a twelve month period for provision of services.

Two further provisions are particularly relevant for Swiss companies:

  • China will not be entitled to levy any business tax or any value added tax on international transport services provided by Swiss shipping companies and airlines.
  • Capital gains taxation deriving from disposal of shares are taxed in the country where the company of which the shares are being sold is resident provided a minimum participation of 25% during the last 12 month preceeding the disposal. 

Comments

Along with the new Free Trade Agreement between Switzerland and China this new and favorable DTA will further enhance mutual trade and direct investments between the two countries and allow Switzerland to become a hub for Chinese companies doing business in Europe. The Agreement has to be ratified by the parliaments of the two countries and is subject to an optional referendum in Switzerland.

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