China’s Trade and Investment Agreement Framework

China has been extremely active in putting into place a variety of trade agreements. This includes bilateral investment treaties (BITs), free trade agreements (FTAs), and double taxation agreements (DTAs), etc.

Free Trade Agreements

China has developed a strategic position when it comes to entering into free trade agreements – the policy of allowing dutiable and tax reduction on certain products and services being one of the main cornerstones that has projected the nation to be the world’s manufacturing hub over more recent years.

Without doubt, the signing of the China-ASEAN FTA, followed by the recent RCEP agreement in particular, will continue to have a huge impact on China and Asia’s development in global sourcing and the foreign investment related to this.

China also has a Free Trade Agreement with Switzerland, which as a result has become one of the few European nations not to have a China trade surplus.

In total, China has signed off 23 FTAs impacting 26 countries or regions countries (including the 10 ASEAN nations), has another 10 under negotiation, and a further eight under consideration.

Bilateral investment agreements (BITs)

China has been entering into bilateral investment treaties (BITs) with other countries since the early 1980s, when the nation began its path to reforms under then-state leader Deng Xiaoping. Although many have now been superseded by more complicated and sophisticated trade agreements and other bilateral mechanisms, BITs remain important, especially for investors from emerging nations with relatively immature tax laws and regulatory environments. Such treaties also help to underpin the bilateral investment conditions between China and other developed nations.

Among others, BITs are a useful starting point to clarify legal and tax treatments under bilaterally agreed conditions and should be understood as a bilateral document of first resort when understanding the investment environment, and protection mechanisms that China offers its many trading partners.

China has China has in total 107 BITs in force, with another 17 under negotiation.

Double tax avoidance agreements (DTAs)

Tax

Tax laws and regulations throughout Asia are continuously being updated and refined. Our team of professionals is accustomed to navigating this fast-paced environment.

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DTAs are mostly of a bilateral nature and, while DTA-signing countries are not all members of the Organization for Economic Cooperation and Development (OECD), DTAs are generally based on model conventions developed by the OECD or (less commonly) the United Nations. And while about 75 percent of the actual words of any given DTA are identical with the words of any other DTA, the applicability and specific provisions of each treaty can vary substantially.

From an investor’s perspective, confusion about international taxation can arise when investors are subject to two different and potentially conflicting tax systems. For example, Hong Kong and Singapore adopt a “territorial source” principle of taxation, which means that only profits sourced locally are taxable. Meanwhile, other countries, such as China and the United States, are on the worldwide tax system, and resident enterprises can be required to pay tax on income sourced both inside and outside of the country.

DTAs not only provide certainty to investors regarding their potential tax liabilities but also act as a tool to create tax-efficient international investments.

So far, China has signed DTAs with 110 countries or regions.