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China-Italy tax treaty new step in ratification

Tax treaties and double tax agreements between two jurisdictions are an excellent tool to boost and strengthen the bilateral economic relationship and promote cross-border investments. Currently, thousands of tax treaties and arrangements are in force worldwide.

According to international law, double tax agreements shall generally be approved and ratified by both countries through their own internal legal procedures necessary for the entry into force. Both contracting States shall then notify each other the completion of the procedures, and the agreement would usually enter into force after mutual receipt of the latter notification according to a specific timeline set in the agreement or in the ratification documents.

The process of ratification of the Double Tax Agreement between the Italian Republic and the People's Republic of China, signed on March 23rd 2019 in Rome during the visit of the Chinese delegation in Italy for the Belt Road Initiative MoU, has moved a step forward with the approval of the draft bill by the Senate on July 8th, 2020. The bill's text is now transmitted to the other Chamber for the discussion and the approval.

Based on the Italian legislative system, the ratification of an international tax treaty shall follow the general legislative process, which means that a bill shall be first approved by both chambers of the Parliament and then promulgated by the President of the Republic.

According to the Chinese procedures about the conclusion of treaties, the Standing Committee of the National People's Congress shall decide on the ratification of the treaty. Subsequently, the President of the People's Republic of China shall, in accordance with the decision of the Standing Committee, ratify the treaty.


Previous China-Italy tax treaty was signed on October 31st, 1986, effective from November 14th, 1989 and applicable since January 1st 1990

The new tax treaty updates the previous one and includes OECD / G20 BEPS recommendations.


As regards dividends, a reduction in the withholding tax rate has been introduced compared to the previous DTA signed in 1986, from 10% to 5%, in case of qualified dividends, therefore with direct participation of at least 25% of the equity held for not less than 365 days.

This rate reduction will grant a tax benefit to Italian companies that receive dividends from their subsidiaries. Besides, the beneficial rate of 5% for qualified shareholdings will increase the equity ratio allocation for investments in both countries.

Dividends non-qualified (equity lower than 25%) will be taxed with ordinary rate of 10%.

With reference to interests, the measure of the withholding tax applicable in the State of the source may not exceed a rate of 10% of the gross interest amount; A reduced rate of 8% on interest paid to financial institutions is granted in relation to loans with a minimum duration of three years aimed at financing investments projects and tax exemption for interests paid or received by public institutions.

Concerning royalties, the new tax treaty confirms a standard rate of 10% and introduces an effective rate of 5% for payments related to the use or right to use industrial, commercial or scientific equipment. This new rate on royalties is lower than the royalties rates of main European countries where 6% is the rate on similar royalties for DTA with Germany, France, United Kingdom, and Spain.

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