On 1 January 2017, the new Double Tax Agreement between the People’s Republic of China and the Federal Republic of Germany has become applicable. The agreement which has been signed on 28 March 2014 in Berlin has 33 articles and a protocol. It also replaces the previous agreement, signed back in 1985.
The agreement was issued in three languages: Chinese, German, and English. Although all versions should be identical, our ECOVIS Beijing experts nonetheless discovered a small deviation in Art. 32 Paragraph 2 (1), dealing with the date after which the agreement takes effect for various payments.
There, the German and English versions says that provisions of this Agreement shall have effect “in the case of taxes withheld at source, in respect of amounts paid on or after the first day of January of the calendar year next following that in which the Agreement enters into force”. Since the agreement has already become officially effective on 6 April 2016 , the rule applies from 1 January 2017 onwards.
However, in the Chinese version , the word ‘paid’ has been replaced by the Chinese term ‘qu de (取得)’, which literally means obtained or generated.
Although this sounds like a mere distinction in perspective, it might have some impact on certain forms of payments, such as dividends or bonuses. Whereas the English and German version say that the agreement is valid for taxes on dividends which are paid after 1 January 2017, the Chinese version would only apply to taxes on dividends being based on profits generated after 1 January 2017.
It should be pointed out that according to the protocol, the English version prevails in case of differences between the different versions. Thus, the agreement clearly applies to all relevant taxes paid after the 1 January 2017. Unfortunately, Chinese authorities do often not pay attention to versions in other languages, and there is a considerable risk of confusion and misinterpretation.
Should that happen, it is advisable to contact your tax lawyer or tax consultant for help.
Continue reading about similar topics such as How to pay your employees and save taxes in China.
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