Q&A

Before it will grant DTA (Double Taxation Avoidance) relief from Withholding Tax on dividends, interest or royalties, the SAT (State Administration on Taxation) must be satisfied that the applicant company in a DTA partner jurisdiction is indeed the “beneficial owner” of the Chinese subsidiary. The SAT bases its judgment on a principle of “substance over form” – that is, it is not enough that the applicant company is a tax resident in the DTA partner jurisdiction in question. This can pose a significant problem, especially for companies that were established many years ago through a holding company in Hong Kong, and thus did not consider their future qualification as “beneficial owners.” Therefore, conducting a preliminary assessment of a company’s situation is typically the first step taken by Dezan Shira and Associates professionals to determine the likelihood of approval prior to submitting an application for DTA relief.