UK and China revise double taxation treaty

REVISIONS TO THE double taxation treaty between the UK and China will reduce the withholding tax on dividends received by UK investors from Chinese companies.

The document revisions coincide with the visit of Chinese premier Wen Jiabao. They reduce the withholding tax on dividends paid out by Chinese companies to 5% from 10%. This will apply to people holding at least 25% shares in a Chinese company and the rate will remain at 10% for other dividends.

There has also been a small change in the treatment of royalties, with some royalties being charged at 6%, down from 7%.

Baker Tilly international tax partner Kevin Phillips said: "Since the Chinese already get exemption from dividends in the UK, the biggest winners are UK investors in China."

The article on capital gains tax (CGT) has also been updated, Phillips highlighted: "The practical reality is not a lot of change. But they have made it clearer about when CGT can be charged."

The changes are unlikely to take effect for a few months until various procedures have been undertaken, he added.

The original treaty was signed in July 1984 and last revised in September 1996.