Foreign enterprises investing in China, including those from Hong Kong, will be subject to a 10% withholding tax on passive income from dividends, interest, property rentals, royalties, and other China-sourced income, unless exempted under a tax treaty, if they have not established an institution or place of business in China.
Hong Kong has signed a Comprehensive Double Taxation Agreement with the mainland.
Dividends (for qualifying companies)
If the beneficial owner of the dividends is a company that directly holds at least 25% of the equity of the company paying the dividends, the tax rate on the dividends is 5%.
When domestic subsidiaries distribute dividends to their Hong Kong parent companies, they also enjoy a 5% preferential tax rate (in countries without a treaty, the standard withholding tax rate is 10%). To avail this benefit, it is necessary to apply for a corporate tax resident certificate from the Hong Kong tax authority.
Our firm took three months to successfully apply for the certificate for our client. Distributing RMB 5 million in dividends saved RMB 250,000 in taxes.