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China-Italy Tax Treaty Ratification Process

Double tax agreements between two jurisdictions are tools to boost the bilateral economic relationship and promote cross-border investments.

A new double tax agreement (DTA) between China and Italy was signed in Rome on March 23rd, 2019. The tax treaty will replace the previous one signed on October 31st, 1986 and includes OECD / G20 BEPS recommendations for the prevention of fiscal evasion.

The treaty signed in 2019 was approved by the Italian Senate on July 8th, 2020, the bill’s text was transmitted to the other Chamber for the discussion and the approval, but the process of ratification has not been completed yet.

The latest double tax agreements ratified by China are those with the Republic of Congo, Angola and Rwanda, that were all signed in 2018, became effective in 2022 and are applicable from 1 January 2023.

The latest tax treaties ratified by Italy are those with Colombia and Jamaica, both signed in 2018, ratified in 2020 and applicable from 2021.

The average time for the ratification process for tax treaties in Italy has been four years, also in the case of the previous China-Italy tax treaty that was signed in 1986 and came into effect in 1990. In case the new tax treaty could be ratified during 2023 it will enter into force from January 1st 2024.

The new tax treaty will enter into force 30 days after the exchange of the ratification instruments replacing the old tax treaty.

Compared to the previous tax treaty signed in 1986, the DTA signed in 2019 introduces a reduction on dividends withholding tax rate 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 companies that receive dividends from their subsidiaries. Besides, the beneficial rate of 5% for qualified shareholdings may increase the equity ratio allocation for investments in both countries.

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 between China and Germany, France, United Kingdom, and Spain.


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