USA Tax Treaties with China

Email: nyc4ww@evershinecpa.com
or
The Engaging Manager Ian Lin, a well-English speaker
Tel: +1-510-996-2685

CN-Q-10:
中國母公司在美國是否可以依DTA申請沒有常設機構(PE)下零稅率?
China Parent Company, can apply for zero tax rate without PE under DTA in the United States?

CN-A-10:
Yes.
China has DTA with the United States, and if China Legal Resident company is without PE (Permanent Establishment), it will be deemed as “non-United States Domestic Sourced Income”.
That means the United States will levy zero-tax.
However, China Legal Resident company still needs to send the zero-tax application to the United States Tax Bureau for being approved.

CN-Q-20:
中國母公司在美國設立了美國子公司， 中國母公司替子公司服務收入能否申請零稅率?
When China Parent Company as an Investor, set up a United States subsidiary, and provide services from China to United States Subsidiary, can apply for zero tax rate without PE under DTA in the United States?

CN-A-20:
According to DTA Article 5 item, 7, A United States subsidiary will not be treated as PE of China Parent company as an investor because it is a separate legal entity.
That means if a United States Subsidiary pay service fee to China Parent Company through service contract signed between subsidiary and China Parent company
as an investor, China Parent Company can apply zero tax.
As for if paid amount is reasonable, it will get involved TP (Transfer Pricing) judgment by United States Tax Bureau.

CN-Q-30:
美國依DTA沒有PE下零稅率申請的程序為何?
What is the procedure for the United States to apply for a zero tax rate under DTA without PE?

CN-A-30:

1. Provide Form W-8BEN-E – Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities) to the withholding agent/ payer before income is paid or credited. (Do not send this Form to the IRS.
2. Form 2848 – Power of Attorney and Declaration of Representative must be accompanied if Form W-8BEN-E is completed by an agent acting on behalf.
3. The foreign corporation provides TIN (Taxpayer Identification Number) and certifies that the foreign corporation is a resident of a treaty country and is a beneficial owner of the income.

CN-Q-40:
中國母公司有美國來源所得的各項所得扣繳稅率為何?
When China Resident company has United States domestic sourced income, what are the withholding tax rates for various incomes in the United States?

CN-A-40:
China has DTA with the United States, and if you are with PE (Permanent Establishment) in the United States, your income will be considered as United States domestic sourced income.
As for levying Tax Rate, please be aware:
if United States Tax rate > DTA Rate, adopt DTA Rate; if United States Tax rate < DTA Rate, adopt United States Rate.

If DTA applied, the DTA rates between China and the United States are as below:

*The withholding tax rate under domestic law may apply rather than the treaty rate where the domestic law rate is lower than the treaty rate.

CN-Q-50
當中國稅務居民有美國來源所得，依DTA優惠稅率申請的程序為何?
When China Tax Resident has United States domestic sourced income, what is United States application procedure based on the DTA preferential tax rate?

CN-A-50:

1. Provide Form W-8BEN-E – Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities) to the withholding agent/ payer before income is paid or credited. (Do not send this Form to the IRS.)
2. Form 2848 – Power of Attorney and Declaration of Representative must be accompanied if Form W-8BEN-E is completed by an agent acting on behalf.
3. The foreign corporation provides TIN (Taxpayer Identification Number) and certifies that the foreign corporation is a resident of a treaty country and is a beneficial owner of the income.
4. Refer to the below link for related forms.

https://www.irs.gov/forms-pubs/about-form-w-8-ben-e

Summary of TAX TREATY between the United States and CHINA

The Government of the United States of America and The Government of The People’s Republic of China concluded and signed an Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (Double Taxation Agreements, DTA), on 30 April 1984 and in force on 21 November 1986.

Permanent Establishment

Article 5 states the term permanent establishment (PE) means a fixed place of business which generally includes the followings:

*A place of management
*A branch
*An office
*A factory
*A workshop
* The furnishing of consultancy services through employees or other personnel for periods aggregating more than 6 months.

Withholding Tax

*Article 7 of DTA between the United States and China explained, the United States may not tax payments on business profits rendered by China corporations unless it is attributable to the permanent establishment situated in the relevant territory.

*In Article 9, dividends paid by a United States Resident enterprise to China Resident enterprise, if the recipient is the beneficial owner of the dividends, the tax charged shall not exceed 10%.

*Article 10 states that where the beneficial owner of the interest is a non-resident, shall be taxed in the territory in which it arises at the rate not exceeding 10% of the gross interest.

*Article 11 explained royalties means payment for the use of, or the right to use, any copyright of literary, artistic, or scientific work including cinematographic films, or films or tapes used for radio or television broadcasting, any patent, technical know-how, trademark, design or model, plan, secret formula or process or information (know-how) concerning industrial, commercial, or scientific experience.
Royalties for the right of use of industrial, commercial, or scientific equipment, effective rate of 7% (10% x 70% of the royalties) of the gross amount of these payments.

*Technical services are covered by the business profits in Article 7.
United States corporations may not tax payments for technical services rendered by a China enterprise unless it is attributable to PE.

*A professional service or other activities provided by individuals of an independent character was explained in Article 13.
United States corporations may not tax payments for professional service rendered by a China resident unless the China resident has a fixed place or stay in the United States for 183 days or more.
An independent profession includes physicians, lawyers, engineers, architects, dentists, and accountants.

Elimination of Double Taxation

Article 22 of the DTA states that double taxation shall be eliminated by allowing tax credit to be made available to the home resident territory.
It shall be credited against the tax levied in the first-mentioned territory on that resident.
However, the amount of credit shall not exceed the amount of the tax in the first-mentioned territory.

Exchange of Information

Article 25 states that the competent authorities of the territories shall exchange such information relevant to the provision of this Agreement.

Please be aware below Warning:
The above contents are digested by Evershine R&D and Education Center in October 2021.
Regulations might be changed as time goes forward and different scenarios will adopt different options.
Before choosing options, please contact us or consult with your trusted professionals in this area.

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