Laws of the People's Republic of China

the State Taxation Administration

Notice of the State Taxation Administration on Relevant Issues concerning the Implementation of the Interest Clauses in Tax Agreements

Guo Shui Han [2006] No. 299

To the bureaus of state taxation and local taxation of all provinces, autonomous regions, municipalities directly under the Central Government, and cities under separate state planning, and Yangzhou Institute of Taxation,

As prescribed in the interest clauses of the agreements concluded between China and other countries on the avoidance of double taxation (hereinafter referred to as agreements), the interest obtained by the residents of the signatory country within China shall be obliged to pay taxes in China, with the tax rate generally not higher than 10%, with only a few exceptions with tax rate lower or higher than 10%. Not withstanding the aforesaid taxation provisions, some agreements prescribe that the interest obtained by the financial institutions or other organizations of the central bank or government of one of the signatory countries shall be exempted from tax in the other country in order to encourage the flow of funds between both countries, and some agreements further list the names of tax-exemption banks or financial institutions in the interest clauses, protocols or exchange letters. For the purpose of guaranteeing the correct implementation of the provisions in the agreement on levying tax on or exempting tax from interest income, notice on relevant issues is made as follows:

I.

Where the interest clauses in an agreement prescribe that the interest obtained from China by the financial institution or other organization of the central bank or government of the signatory country shall be exempted from tax in China, the said bank (institution) may file an applications to the competent taxation authority at the locality where the interest occurs for relevant agreement-based treatments after signing a loan contract. The competent taxation authority where the interest occurs shall go through the procedures on the exemption of interest income tax. When applying for exemption from the interest income tax, the taxpayer shall attach the proof document issued by the competent taxation authority of the signatory country on its status as a bank or financial institution owned by the government as well as a counterpart of the relevant loan contract.

II.

Where any relevant clause of an agreement, protocols, meeting minutes or exchange letter, etc. has specified the signatory country's banks and financial institutions that shall be exempted from interest income tax in China, each taxpayer shall go through the procedures for exemption of interest income tax in accordance with Article 1 of the present Notice, and only needs to attach a counterpart of the relevant contract.

III.

When receiving the request of a taxpayer for exemption of interest income tax under the agreement, the local competent department of taxation where interest occurs is requested to correctly implement the agreement, and handle the procedures as soon as possible. In case that it is hard to clarify whether the taxpayer may enjoy the abovementioned agreement-based treatments, and any difficulty or objection arises in the implementation process due to the change of the name or there structuring, etc. of a listed bank during the implementation process, the matter shall be reported to the State Taxation Administration level by level for confirmation.

IV.

The present Notice shall come into force as of the date of promulgation. The Notice of the State Taxation Administration on the Relevant Issues concerning Exemption of Tax from Interest Income for Implementing Tax Agreements (Guo Shui Fa [1996] No. 029) shall be repealed simultaneously.

Appendix: Table of Relevant Provisions in Interest Clauses of Tax Agreements

State Taxation Administration

March 1, 2006 AppendixTable of Relevant Provisions in Interest Clauses of Tax Agreementshtm/e04789.htm

　　Note:
　　1. For countries other than those listed in Column1 of the table, the tax rate on the interest under the agreements shall be 10%; and
　　2. The tax arrangement between the Mainland of China and Hong Kong has no interest clauses. For the interest income obtained by residents of Hong Kong from the Mainland of China, relevant provisions of the domestic law shall be observed. Article 11 of the tax arrangement between the Mainland of China and Macao shall be an interest clause, and shall apply to the interest income obtained by residents of Macao from the Mainland of China.