On July 15, Mainland China and Macao Special Administration Region signed the Protocol for the Avoidance of Double Taxation on Income and Prevention of Tax Dodging and Evasion (“Macao Protocol”) in Macao. The Macao Protocol amends the Arrangement on Avoidance of Double Taxation and Prevention of Tax Dodging and Evasion (“the 2003 Arrangement”), signed on December 27, 2003. The Macao Protocol is expected to become effective on January 1, 2010.
The new Macao Protocol improves the 2003 Arrangement by lowering the tax rates on dividends, interests and royalties imposed by tax authorities in the jurisdiction where such dividends, interests and royalties arise. For instance, if the company paying dividends is the resident of one party, and the beneficial owner of the dividends is the resident of the other party, the highest tax rate of dividends (10 percent) under the 2003 Arrangement is now changed to: (1) if the beneficial owner of dividends directly holds at least 25 percent equity interest in the company (exclusive of partnership enterprise), the tax rate should be no higher than five percent; (2) in other situations, the rate tax remains is still capped at 10%. Accordingly, for interests and royalties, the highest tax rate is set at seven percent rather than a range of 7%-10% provided in the 2003 Arrangement.
In addition, the new Macao Protocol clarifies that the Macao Protocol is by no means to interfere with each party’s power to execute laws and measures on the prevention of tax dodging and evasion as long as such legislation does not conflict with this Protocol.
- Protocol for the Avoidance of Double Taxation on Income and Prevention of Tax Evasion and Underreporting between Mainland China and Macao
- Issuing Authority: State Administration of Taxation
- Date of Issuance: July 15, 2009 / Effective Date: January 1, 2010 (expected)