The new double taxation treaty with China adapts the bilateral tax framework to the current economic environment.

Agreement between the Kingdom of Spain and China (BOE 30-03-2021)

A new Spanish-Chinese Agreement to eliminate double taxation and prevent tax fraud is approved to bring the bilateral tax framework into line with the current economic environment, the result of the rounds of talks that both countries held in Beijing in 2015 and 2018.

Convention between the Kingdom of Spain and the People’s Republic of China for the elimination of double taxation in relation to taxes on income and the prevention of tax avoidance and evasion and its Protocol, done at Madrid on 28 November 2018 (BOE 30-03-2021)

Subjects concerned: Corporate Income Tax. Personal Income Tax. Non-Resident Income Tax. Measures against tax evasion and avoidance.

Date of entry into force: 2 May 2021.

Effective date: In respect of taxes not withheld at source: to tax years beginning on or after 2 May 2021. In all other cases: as from 2 May 2021.

The new Spanish-Chinese Agreement to eliminate double taxation and prevent tax fraud aims to adapt the bilateral tax framework to the current economic environment, and is the result of two rounds of talks that delegations from both countries held in Beijing in 2015 and 2018.

The Convention and its Protocol shall enter into force on 2 May 2021, three months after the date of receipt of the last notification by the Parties informing each other of the completion of their respective internal requirements, as provided for in Article 30 of the Convention.

Taxes and incomes covered

The new DTA, which will replace the existing 1990 DTA, covers personal income tax, corporate income tax and non-resident income tax on the Spanish side, setting the criteria for taxation of real estate income, business profits, international transport, associated companies, dividends, interest, royalties, capital gains, independent personal services, employment income, remuneration of directors, artists and sportsmen, pensions, civil service, teachers and researchers, students and other income.

It also incorporates provisions concerning methods for the elimination of double taxation, entitlement to the benefits of the Convention, the application of national rules and measures to prevent tax avoidance, the application of non-discrimination criteria, the mutual agreement procedure in case of disagreement on the manner of application of the Convention, the exchange of information between the respective competent authorities and the non-interference of the provisions of the Convention on the tax privileges of members of diplomatic missions and consular posts.

It should be noted that the Protocol establishes provisions relating to the application of the limitation of tax rates in relation to dividends, interest and royalties, and to the specification of the entities whose capital is considered to be wholly owned by each State, referring in the case of Spain to the Instituto de Crédito Oficial, the Fondo de Reestructuración Ordenada Bancaria, the Consorcio de Compensación de Seguros and in general to any entity wholly owned by Spain that the competent authorities of the Contracting States may agree at the time.

Taxation of investment income:

SPANISH-CHINESE CDI 1990

Dividends: Maximum rate: 10%.

Intereses: 10%

Fees: Maximum rate: 10%.

SPANISH-CHINESE CDI 2021

Dividends: Beneficiary company holding at least 25% of the capital of the company paying the dividends during a period of 365 days: 5% Other cases: 10 %

Interest: Maximum rate: 10%.

Fees: Maximum rate: 10%.

Taxation of other sources of income

Gains derived by a resident of a Contracting State from the alienation of immovable property may be taxed in that other State, as may gains derived from the alienation of movable property forming part of the assets of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or from the alienation of movable property forming part of a fixed base at the disposal of a resident of a Contracting State in that other Contracting State for the purpose of providing independent personal services.

However, profits derived by an enterprise of a Contracting State operating ships, aircraft, railways or road vehicles in international traffic from the disposal of such ships, aircraft, railways or road vehicles, or of movable property connected with their operation, shall be taxable only in that Contracting State.

Gains from the disposal of shares or holdings more than 50 per cent of the value of which derives from immovable property situated in the other Contracting State may be taxed in that other State, except for property used in the conduct of the company’s business.

On the other hand, gains which are traded on a recognised stock exchange, provided that the total number of shares disposed of by the resident during the tax year in which the disposal takes place does not exceed 3 per cent of the value of those quoted shares, of a company resident in the other Contracting State may be subject to taxation in that other Contracting State if, at any time during the 365 days preceding the disposal, the transferor held, directly or indirectly, at least 25 per cent of the capital of that company.

Methods for the elimination of double taxation

CHINA:

-When a resident of China obtains income in Spain, he/she can deduct the Chinese tax due by this resident, not exceeding the amount of Chinese tax on this income calculated in accordance with the regulations governing taxation in China.

-Where the income obtained in Spain is dividends paid by a company resident in Spain to a company resident in China and owning at least 20% of the shares of the company paying the dividends, the deduction will take into account the income tax paid in Spain by the company paying the dividends.

SPAIN:

-When a resident of Spain obtains income that may be subject to taxation in China, Spain will allow: – The deduction in that resident’s income tax of an amount equal to the income tax paid in China. – The deduction of the corporate income tax actually paid by the company distributing the dividends, corresponding to the profits out of which such dividends are paid, in accordance with Spanish domestic law.

-The deduction may not exceed the part of the income tax, calculated before deduction, corresponding to the income which may be taxed in China. Where income earned by a resident of Spain is exempt from tax in Spain, the exempt income may be taken into account in calculating the tax on that resident’s other income.

Mutual agreement procedure and exchange of information

Where a person considers that measures taken by one or both Contracting States involve taxation not in accordance with the IDC, he may submit his case to the competent authority of the Contracting State of which he is a resident within three years of the first notification of the measure involving taxation not in accordance with the provisions of the Convention.

Competent authorities shall exchange such information as is likely to be of interest for the application of the provisions of this Convention, and such information shall be kept confidential and communicated to persons or authorities (including courts and administrative bodies) responsible for the assessment or collection of taxes.