Overview

The UK and Chinese governments recently signed a new double tax treaty. With no dividend withholding tax, an exemption from tax for dividends and chargeable gains (subject to meeting the necessary conditions), a falling corporation tax rate and a bilateral investment treaty with China, the UK is already an attractive holding company location for investments into China. When the new treaty enters into force (most likely to be next year), the UK’s attractiveness will be even stronger than it already is. Groups with interests in China should begin planning now in order to gain maximum benefit from the favourable new provisions in the treaty, in particular the 5% rate of Chinese withholding tax on dividend flows between China and the UK. Any planning should, however, take into account the Chinese authorities’ aggressive approach to avoidance, not only in the treaty but in domestic law.