Changes in China Reduce Withholding Tax (WSJ)

Clarification in Chinese tax rules allow more foreign companies to claim 5% withholding tax rate.

China issued regulations Friday that will allow some companies based outside of the country to pay just 5% withholding tax on dividends repatriated from China, down from the 10% rate companies from countries without a tax treaty would pay. The change would apply to Hong Kong and Singapore, but will not apply to the United States, as the existing double-taxation treaty sets the withholding rate at 10%.

Companies have had difficulty qualifying for the lower tax rate since it was put in place in 2008 because the law required the overseas parent company show substantial business in the other country. Now the lower rate is available if the parent is a listed company or if the holding company can show that its owner has a real business.

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