Clarified Rules for Foreign Dividend Recipients

On February 3, 2018, China’s State Administration of Taxation issued the Announcement No. 9 on Determining the Beneficiary of Dividends, Interest, and License Incomes from Double Tax Agreements (DTAs). It defines the requirements for the taxation benefits from dividends, interest and licensing income of a non-resident payee originating in the People’s Republic of China.

The regulation will enter into force on April 1, 2018, replacing the previous rules from Guoshuihan [2009]  601 and SAT Announcement  [2012] No. 30.

Who is affected 

A non-resident taxpayer in China is subject to this notification if a DTA is concluded between China and the country of the taxpayer. Furthermore, the taxpayer must also submit an application to be considered as a beneficial owner by the Chinese tax authorities. Announcement No. 9 keeps the wordings of Guoshuihan [2009]  601 and defines the term “beneficial owner” as a party that owns or controls income and/or rights arising from such income. It has to be assessed on a case-by-case basis whether a non-resident taxpayer is a beneficial owner within the meaning of the DTA. Five factors can lead to a negative assessment:

  • More than half of the income must be paid by the taxpayer within 12 months of transferring to a recipient in the third country or region. Equally, if an actual payment is made within one year without a contractual obligation.
  • The business activities carried out by the recipient of the income are not considered as a significant business activity. Main business activities include production-, trading-  and management activities. The determination of whether the recipient has performed significant business activities is based on the functions and risks assumed by the recipient. If companies execute other non-related business activities, they are not recognized as companies having significant business operations.
  • In addition to a loan agreement, where interests incur and are paid, the lender has another loan agreement or a deposit agreement with a third party.
  • The recipient is exempt from the tax on the respective income, the income is not taxable in the country of residence, or the income is taxable, but the effective tax rate is low
  • A license agreement covering the copyright, patent or technology with a third party relating to the proper use or transfer of ownership.

“Safe Harbour” regulations are being expanded

Announcement No. 30 of 2009 created a “Safe-Harbour” Rule for listed companies that earn in China dividend income. Announcement No. 9 extends its scope to include dividends paid to state bodies and stock companies, which are listed in a country, which has signed a double taxation agreement with China. The rule also applies to natural persons and other legal entities, which have held directly or indirectly 100% of a recipient for at least 12 months. In these cases, the recipient of the dividends will be considered as the beneficial owner of the dividends, and it is not necessary to consider the above 5 factors. 

Pass-Through Scheme

The new rule opens the way for recipients of dividends to qualify for tax benefits, even if the recipient does not qualify for Safe-Harbour or as the beneficial owner. For this, the shareholder has to own directly or indirectly 100% of the receiving equity for at least the last 12 months. Additionally, the following two scenarios have to apply:

  • The shareholder is tax resident in the same jurisdiction as the recipient of the dividends.
  • The shareholder is not a tax resident in the same jurisdiction but he/she or any intermediate entity receives better treatment than stipulated in the DTA or any other agreement with China

Comments from our tax consultants

The status of beneficial owners is a priority for the Chinese tax authorities as well as for the taxpayers. The publication of Announcement No. 9 expands the regulatory framework for beneficial owners in China. On the one hand, the notice increases the opportunities for beneficiaries to receive new benefits for passive income from China and provides clear guidance to tax authorities and taxpayers on many issues. On the other hand, it signals that the tax authorities are aiming to prevent abuse of passive income. Potentially affected parties should consult their tax advisors and take appropriate actions on existing or future cross-border structures.

 Richard2017 150x225   Richard Hoffmann

Richard Hoffmann is a partner at ECOVIS Beijing China. Richard obtained an honors degree in law and worked in Germany, the United States, and China for various prestigious law firms prior to joining ECOVIS. In addition to being a member of the board of ECOVIS International, he is Supervisor for the China business of a respected German company and shares his extensive knowledge to students by teaching commercial law in China at SRH Hochschule Heidelberg. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV stations. Contact:


Ecovis Beijing is the trusted tax and legal advisor to several embassies and official institutions in China. It specializes in mid-sized international companies and is focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up for our Newsletter, give us a call +86 (10) 6561 6609 or contact us directly via