New Tax Treaty between Germany and China

On 28 March 2014, a new agreement between Germany and the People’s Republic of China (hereinafter referred to as the “PRC”) for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (hereinafter referred to as the “new DTA”) and its protocol were signed. The New DTA and its protocol will enter into force on the 30th day following the day on which both countries notify each other of completion of their respective ratification procedures.

As compared to the existing DTA and its protocol that were signed on 10 June 1985, major amendments under the new DTA are laid out in the below table:

Provisions

New DTA

Existing DTA

Permanent establishment (“PE”)

Construction PE:
A period more than 12 months

Construction PE:
A period more than 6 months

 

Service PE:
A period or periods aggregating more than 183 days within any 12-month period

Service PE:
A period or periods aggregating 6 months within any 12-month period

Withholding tax

Dividends:
5%/10%/15%

Dividends:
10%

 

Royalties:
10%/6%

Royalties:
10%/7%

Capital gain

Provides a relief from capital gains tax in the following three types of share dispositions:

  1. If no more than 50% of the value of the shares represents directly or indirectly immovable property;
  2. If the transferor holds directly or indirectly less than 25% of the shares of the disposed company for the 12-month period preceding the share transfer;
  3. If shares are substantially and regularly traded on a recognized stock exchange and the total of the shares disposed by the transferor during the fiscal year in which the disposal takes place does not exceed 3% of the quoted shares.

No such relief provided

Independent personal services

If a resident of a Contracting State stays in the other Contracting State for a period or periods amounting to or exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned; the resident’s income derived from his activities performed in that other State may be taxed in that other State

If a resident of a Contracting State stays in the other Contracting State for a period or periods, in the aggregate, more than 183 days in the calendar year concerned, the resident’s income derived from the activities in that other State may be taxed in that other State.

Income from employment

Remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

  1. The recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned; and
  2. The remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and
  3. The remuneration is not borne by a PE or a fixed base which the employer has in the other State.

Remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

  1. The recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the calendar year concerned; and
  2. The remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and
  3. The remuneration is not borne by a PE or a fixed base, which the employer has in the other State.

Anti-abuse rules

Provides anti-abuse rules and allows both contracting states to apply domestic laws concerning the prevention of tax evasion and avoidance.

Not such rules provided.