A protocol to the treaty between the UK and China was signed on 27 February 2013. This protocol amends the dividend article of the 2011 tax treaty between the UK and China which is not yet in force. Both the treaty and protocol will enter into force when the parliamentary ratification procedures and exchange of notes have been completed.
Under the terms of the protocol the maximum withholding tax rate on dividends will be reduced to 5% where the beneficial owner of the dividend is a company that directly holds at least 25% of the capital of the company paying the dividend. Under the original text of the treaty the 5% rate would apply in the case of either direct or indirect 25% ownership. Under the 1984 UK-China treaty that is currently still in force the maximum withholding tax rate on dividends is 10% regardless of the size of the shareholding.
This development may affect the position of some UK companies trading through a subsidiary or associated company in China when the new treaty comes into force. UK companies doing business in China may wish to review their policy in respect of repatriation of profits from China to ensure that they are doing this in the most efficient manner.
