• Professional News
  • 27 November 2012

Bill Containing New Danish-Chinese Double Taxation Treaty Adopted

During the visit of the Chinese President, Hu Jintao, in Denmark in June this year, a number of agreements were signed between Denmark and China, including a new double taxation treaty. The new treaty is to replace the 1986 double taxation treaty between the two countries. A bill for the adoption of the double taxation treaty was passed by the Danish Parliament on 27 November 2012. The new treaty will accordingly enter into force once it has been ratified in China (the ratification date in China is currently unknown).

The new treaty is intended to facilitate investments to and from China, while making Denmark a hub for Euro-Chinese trading relations. Amendments to the taxation of dividends and the definition of a “permanent establishment” are particularly interesting.

Dividend distributions
According to the 1986 double taxation treaty, dividends may be taxed at a rate of up to 10% in the source country. The new taxation treaty reduces the applicable tax rate to 5% where the recipient is a corporate shareholder holding at least 25% of the shares in the distributing company. For all other shareholders, the applicable tax rate remains at 10%.

No Danish withholding tax will be levied on qualifying distributions to China. To our knowledge, the abovementioned 5% tax rate is among the lowest withholding tax rates applicable in a double taxation treaty with China.

Permanent establishments
The 1986 double taxation treaty stipulates that a building site only constitutes a “permanent establishment” if the activities undertaken at the site continue for more than six months, while installations (including ships and drilling rigs) constitute permanent establishments when used for exploration or recovery of hydrocarbons for more than three months.

The new double taxation treaty state that unless activities at a building site or an installation continue for more than twelve months, in order for such building site/installation to be deemed a permanent establishment.

Beneficiaries of the new double taxation treaty
The provisions of the new Danish-Chinese double taxation treaty are advantageous for both Chinese investors in Europe and European investors in China. Investors may benefit from the extensive Danish tax treaty network, often allowing for dividends to be streamed through Danish entities without the payment of Danish withholding tax. Denmark may, therefore, prove an attractive base for investments to and from China.

How Bech-Bruun can assist you
Via our Chinese Desk in Copenhagen and our representative office in Shanghai, Bech-Bruun has acquired significant experience in advising both European and Chinese investors. Should you have questions in relation to the new Danish-Chinese double taxation treaty, please contact Anders Oreby Hansen.

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