The new tax treaty between the People's Republic of China and the Netherlands that was concluded on 31 May 2013 will enter into force on 31 August 2014.
This modern new tax treaty significantly improves the position of investors, in particular with respect to:
- protection from dividend withholding tax through the introduction of a reduced 5% rate (coming from 10% in the 1987 treaty) which is the lowest rate provided for under tax treaties entered into by the PRC; and
- capital gains tax in respect of share disposals.
Furthermore, under the new treaty, an OECD Model based exchange of information article replaces the former information exchange arrangements. The new treaty does not provide for spontaneous or automatic exchange of information between the tax authorities of the contracting states.
Please see our China Newsletter of 7 June 2013 for further details on these and other improvements.
The new treaty ranks amongst the People's Republic of China’s most beneficial treaties, putting the Netherlands on par with gateways like Hong Kong, Singapore, and its Benelux neighbours Belgium and/or Luxembourg for structuring Chinese inbound and outbound investments.
The Netherlands has concluded around 100 tax treaties (for the avoidance of double taxation). These tax treaties together with the approximately 90 bilateral investment treaties concluded by the Netherlands ensure that the Netherlands remains a highly sought after jurisdiction for the establishment of international joint venture, holding and financing companies, also in relation to the People's Republic of China (both inbound and outbound). Please see our case study of 11 October 2013 for further details on the benefits of the Netherlands and Luxembourg as jurisdictions for international joint venture, holding and financing companies.