Since 1982, China has signed investment protection agreements with 70-plus countries including Britain, Germany, France, Japan, Australia, the Republic of Korea and Malaysia. Most of the agreements have come into force.

In accordance with the principle of Chinese laws, investment protection agreements fall under the category of international treaties, with their validity being higher than domestic laws.

Bilateral investment protection agreements China has signed cover the contents in the following areas:

1. Types of investment property under protection

The agreements stipulate explicitly that property within the scope of jurisdiction of the investment protection agreements includes movable property, estate, corporate shares, stocks, copyrights, industrial property rights and royalties.

2. Terms offered by host country to investors investment and their business activities related to investment

In the investment protection agreements, the Chinese government commits itself to granting fair and reasonable treatment to foreign investors' investment and their business activities pertaining to investment, and to treating investors from all countries equally, namely, foreign investors can enjoy the most favored nation status in accordance with the investment protection agreements.

3. Measures of requisition and nationalization of investment property of foreign investors and related compensation

In the investment protection agreements, to protect foreign investors' interests, China commits itself not to nationalize investment property of foreign investors. If, under special circumstances, it is necessary to requisition such property in the social and public interests, China will offer fair and reasonable compensation in accordance with applicable domestic legal procedures and on the non-discriminatory basis. The compensatory amount will be paid in a freely convertible currency and is permitted to be remitted abroad freely.

4. Remittance of investment and related proceeds

The investment protection agreements state that a foreign investor's investment and legitimate proceeds can be remitted out of China freely from the foreign currency bank account of a foreign-financed enterprise.

5. Settlement of investment disputes

Investment disputes incurred by foreign investors in China with the government currently can be resolved, in principle, only in a court within China's jurisdiction. To take foreign investors' interests into account, as regards compensation for requisition and nationalization, the Chinese Government permits the submitting of disputes for international arbitration. China now has joined the "Convention on Solving Investment Disputes between States and Nationals of Other Countries." So, the Chinese Government is also considering expanding the scope of permitting the submitting of disputes for international arbitration.

Apart from the above stipulations, investment protection agreements include clauses in which a host country promises to honor its commitments, seeks compensation for investment insurance, and the use and validity of the agreements. Investment protection agreements can be described as a macro-guarantee system encompassing all investors' investment activities.

II. Bilateral Taxation Agreements

To solve taxation problems between countries, since September of 1983, the Chinese Government has officially signed agreements on comprehensively avoiding dual taxation and preventing tax evasions with some 50 countries including Japan, France, Britain, Belgium, Germany, Malaysia, Norway, Denmark, Singapore, Finland, Canada, Sweden, New Zealand, Thailand, Italy, the Netherlands, Czech, Slovakia, Poland, Australia, Yugoslavia, Bulgaria, Pakistan, Kuwait, Switzerland, Cypress, Spain, Romania, Austria, Brazil, Mongolia, Hungary, Malta, the United Arab Emirates, Luxembourg, the Republic of Korea, Russia, Papua New Guinea, India and Mauritius.

1. Scope of agreements' application

The scope of the agreement's application to persons is limited to residents of signatory countries, including legal person residents and natural person residents. The range of tax categories applicable to the agreements mainly covers categories of the income taxes levied and collated. The tax categories listed by China so far are the enterprise income tax, the local income tax and the personal income tax.

2. Contents of taxation agreements and agreement-provided treatment beneficial for investment

The taxation agreements China has signed with other countries adopt the model for the clause structure of the United Nations and the model for the Organization for Economic Cooperation and Development (OECD), whose focus is on stipulating, according to different types of incomes, a number of taxation terms beneficial for investment.

(1) Tax levy on business profits takes the permanent office as the limit. As for the profits made from within the territories of China by enterprises of a signatory country which have not set up permanent offices in China, they may choose not to pay the income tax in China. Likewise, Chinese enterprises also enjoy the same treatment in other signatory countries.

(2) With regard to incomes derived from stock dividends, interests and the use of royalties, the country which is the origin of the incomes will enjoy priority in exercising the tax-levying right and will levy taxes at restricted tax rates, so that residents of one signatory country can pay taxes at a fairly low tax rate on the incomes derived from investment in the other signatory country. Restricted tax rates set by the tax agreements China has signed with other countries generally do not exceed 10% of the total of stock dividends, interests and the fees for the use of royalties.

(3) For the levy of taxes on incomes derived from property and proceeds from property, the country where estate lies exercises the tax-levying right.

(4) For the levy of taxes on the incomes derived from remuneration for personal labor services, in principle, only the country whose residents the earners are can levy the taxes; but for the incomes made from labor service in the other signatory country, if they meet the restricted requirements, taxes can be levied in the other signatory country.

3. Methods to eliminate dual tax levy

China takes the tax revenue deduction method to eliminate dual tax levy. The tax agreements China has signed with other countries generally contain clauses that regard reduced and exempted tax as the whole amount of tax collected and permits that amount as deduction, i.e., as regards taxes of investors that are either exempted or reduced in China, after the investors return home, the other signatory country should grant reduction and exemption according to the absence of tax payment, that is, the whole amount of tax should be deducted from the taxes paid by the investors in that country.

4. Procedures on enjoying agreement-provided terms

To enjoy tax terms as granted by tax agreements, trans-national investors shall observe the rules governing the procedures formulated by the signatory countries for the implementation of tax agreements, provide relevant certificates and handle necessary procedures for applications.

Select from China Enterprises Online