China clarifies beneficial ownership assessment under Hong Kong treaty; US MNCs should review their Asian investment structures

June 2013

Overview

The Chinese State Administration of Taxation has clarified how local-level tax bureaus should assess beneficial ownership (BO) with respect to dividends under China’s tax treaty with Hong Kong. A Hong Kong company whose BO status is accepted would be eligible for a reduced withholding tax rate of five percent on dividends derived from its Chinese investments. Because most US multinationals have Hong Kong holding companies in their Asia holding structures, they should review these principles and guidelines. For those whose investment structures do not include Hong Kong holding companies, the guidance may help in assessing BO status in similar situations.

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