Double Taxation Agreement China Korea

Double Taxation Agreement: China-Korea

Double taxation occurs when two countries tax the same income or capital of a taxpayer. This can happen when a foreign individual or business operates in both China and Korea. To avoid this situation, the two countries have signed a Double Taxation Agreement (DTA), which lays down the rules for taxing the income and capital of taxpayers. In this article, we will take a closer look at the DTA between China and Korea.

Overview of the DTA

China and Korea signed a DTA in 1992, which became effective in 1993. The DTA has since been amended thrice, with the latest amendment coming into effect in 2016. The DTA applies to individuals and businesses in both countries and covers income from all sources, including but not limited to dividends, interest, royalties, and capital gains.

Under the DTA, income earned by a resident of one country can only be taxed in that country, subject to certain conditions. The DTA also provides for tax relief in the form of exemptions, deductions, and credits, which help to reduce the tax burden on taxpayers.

Key Provisions of the DTA

The DTA between China and Korea has several key provisions, some of which are outlined below:

Residence: The DTA defines a resident as a person who is liable to tax in a contracting state by reason of his or her domicile, residence, place of management, or any other criterion of a similar nature. The DTA also provides for tie-breaker rules to determine the residence of a person in case of dual residency.

Income from Employment: Income from employment is generally taxed in the country where the employment is exercised. However, if the employment is exercised in both countries, the DTA provides for a split of the income based on the number of days spent in each country.

Dividends: Dividends paid by a company resident in one country to a resident of the other country are generally subject to a maximum tax rate of 5% under the DTA.

Interest: Interest paid by a resident of one country to a resident of the other country is generally subject to a maximum tax rate of 10% under the DTA.

Royalties: Royalties paid by a resident of one country to a resident of the other country are generally subject to a maximum tax rate of 10% under the DTA.

Capital Gains: The DTA provides for the taxation of capital gains derived by a resident of one country from the sale of immovable property situated in the other country. Capital gains from other sources are generally taxed only in the country of residence of the taxpayer.

Conclusion

The DTA between China and Korea provides a clear framework for the taxation of income and capital of taxpayers operating in both countries. The DTA helps to avoid double taxation and provides for tax relief in the form of exemptions, deductions, and credits. Taxpayers should be aware of the key provisions of the DTA to ensure that they pay the correct amount of tax in each country.