Tax authorities of Russia and China will exchange the information

Ministry of Finance of the RF has endorsed a project of the bilateral agreement between Russia and China, excluding double taxation. Besides, within the new agreement it is expected the mutual exchange of tax information.

As a reminder, such agreement between Russia and China is in force since 1994, but in view of the dynamic development of economic affairs between the states, it was decided to make adjustments to the existing agreement. First of all, in the new version it is made more precise the definition of tax resident. Now, an individual is taken for a tax resident of that country, where he/she has permanent home. By having a permanent home in both countries it is considered the second criterion – closeness of economic and personal relations.

Secondly, within accepted innovations there was double taxation liquidated. Now, an income tax amount, paid by a tax resident from China in Russia for income earned on the territory of our country, may be deducted from the Chinese tax, which this resident must pay. However, the deduction amount should not exceed the amount of Chinese income tax, calculated in compliance with tax laws of China. Similar deductions are prescribed and for Russian residents, earned income in China and paid there appropriate tax.

The operation of the new agreement extends to taxes and profit (including capital increase), personal incomes, as well as to the gain from disposition of property. Besides that, the agreement assumes the introduction of a new rate of taxation of dividends equal to 5%, instead of standard 10% rate. This condition is in force in case, if an acquiring company has participation interest not less than either 25%, or 80 000 EUR.

One of important steps towards the development of economic cooperation between Russia and China is a possibility of the exchange of tax information between countries. The possibility of tax authorities of the RF to request necessary information by Chinese side will highlight additional sources of tax revenues. However, the operations of the new agreement do not extend to Hong Kong, Macao and Taiwan and are in force only in the continental part of China.