Canada Tax Treaties with China

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CN-Q-10:
中國母公司在加拿大是否可以依DTA申請沒有常設機構(PE)下零稅率?
China Parent Company, can apply for zero tax rate without PE under DTA in Canada?

CN-A-10:
Yes.
China has DTA with Canada, and if China Legal Resident company is without PE (Permanent Establishment), it will be redeemed as “non-Canada Domestic Sourced Income”.
That means Canada will levy zero-tax.
However, China Legal Resident company still needs to send zero-tax application to Canada Tax Bureau for being approved.

CN-Q-20:
中國母公司在加拿大設立了加拿大子公司，中國母公司替子公司服務收入能否申請零稅率?
When China Parent Company as an Investor, set up a Canada subsidiary, and provide services from China to Canada Subsidiary, can apply for zero tax rate without PE under DTA in Canada?

CN-A-20:
According to DTA Article 5 item 7, a Canada subsidiary will not be treated as PE of China Parent company as an investor because it is a separate legal entity.
That means if a Canada Subsidiary pay a service fee to China Parent Company through a service contract signed between subsidiary and China Parent company
as an investor, China Parent Company can apply zero tax.
As for if the paid amount is reasonable, it will get involved TP (Transfer Pricing) judgment by Canada Tax Bureau.

CN-Q-30:
加拿大依DTA沒有PE下零稅率申請的程序為何?
What is the procedure for Canada to apply for zero tax rate under DTA without PE?

CN-A-30:
A non-resident may be able to claim an exemption from Canadian income tax on such business profits if the non-resident is a resident of a country with which Canada has entered a double-tax treaty and does not maintain a permanent establishment in Canada.
If you receive Canadian-source income exempt from tax in Canada because of a tax treaty, you can ask the payer not to withhold tax.

Fill up a standardized treaty-based Regulation 105 waiver application form (Form R105) which are available from any Tax Service Office (TSO) or Centre of Expertise (CoE) and is available from the CRA website at: Canada.ca/revenue-agency. Submit at least 30 days prior to the initial payment for the related services. If the officials at the tax office agree you qualify, they will send you a waiver letter to give to your payer. Only when a waiver is issued by the TSO or CoE, may the waiver applicant make full payment to the recipient(s) without withholding.
Refer to the website for information:

https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/rendering-services-canada/where-send-completed-waiver-non-resident-employer-certification-applications.html

Submit the application via My Account.

CN-Q-40:
中國母公司有加拿大來源所得的各項所得扣繳稅率為何?
When China Resident company has Canada domestic sourced income, what are the withholding tax rates for various incomes in Canada?

CN-A-40:
China has DTA with Canada, and if you are with PE (Permanent Establishment) in Canada, your income will be considered as Canada domestic sourced income.
As for levying Tax Rate, please be aware:
if Canada Tax rate > DTA Rate, adopt DTA Rate; if Canada Tax rate < DTA Rate, adopt Canada Rate.
If DTA applied, the DTA rates between China and Canada are as below:

*The withholding tax rate under domestic law may apply rather than the treaty rate where the domestic law rate is lower than the treaty rate.

CN-Q-50
當中國稅務居民有加拿大來源所得，依DTA優惠稅率申請的程序為何?
When China Tax Resident has Canada domestic sourced income, what is Canada’s application procedure based on the DTA preferential tax rate?

CN-A-50:
While the use of Form NR301 is not mandatory for payers to withhold at a reduced rate, it indicates what to expect from CRA before withholding at a reduced rate.

Fill up Form NR301 Declaration of eligibility for benefits (reduced tax) under a tax treaty for a non-resident person. Without Form NR301, the payer may not be allowed to use the entitlement of treaty benefits for the application of less than the full 25% Part XIII tax rate.
A completed NR301 form is valid for 3 years.
If the form is signed under a duly authorized power of attorney for the beneficial owner, attach a copy of the power of attorney form when email the NR301.
Even if you do not get Form NR301 to support the beneficial owner’s country of residence and eligibility for tax benefits, you may apply a tax treaty rate if all the following are true:

1. Obtained complete address of residence that are not post-office boxes or care-of addresses.
2. The payee is an individual.
3. No reason to suspect the information is inaccurate, misleading, or the payee is not entitled to the tax treaty benefit.
4. There are procedures in place so that changes in the payee’s information will result in a review of the withholding tax rate.

Summary of TAX TREATY between Canada and CHINA

The Government of The People’s Republic of China and The Government of Canada concluded and signed an Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (Double Taxation Agreements, DTA), on 12 May 1986 and take effects from 1 January 1987.

Permanent Establishment

Article 5 states the term permanent establishment (PE) means a fixed place of business which generally includes the followings:

*A place of management

*A branch

*An office

*A factory

*A workshop

*The furnishing of consultancy services through employees or other personnel for periods aggregating more than 6 months.

Withholding Tax

*Article 7 of DTA between Canada and China explained, Canada may not tax payments on business profits rendered by China corporations unless it is attributable to the permanent establishment situated in the relevant territory.

*In Article 10, dividends paid by Canada company to a resident of China shall be charged at 10% if the beneficial owner is a company that owns at least 10% of the voting stock of the company paying the dividends, and 15% for other cases.

*Article 11 states that interest arising in Canada may be taxed in Canada according to the laws applicable in Canada, the tax so charged shall not exceed 10% of the gross amount of the interest.

*Article 12 explained royalties means payment for (a) the use of, or the right to use, any copyright of literary, artistic, or scientific work including cinematograph films and films or tapes for radio or television broadcasting, any patent, know-how, trademark, design or model, plan, secret formula, or process; (b) the use of, or the right to use, industrial, commercial, or scientific equipment; or (c) information concerning the industrial, commercial or scientific experience.

*Technical services are covered by the business profits in Article 7. Canada corporations may not tax payments for technical services rendered by a China enterprise unless it is attributable to PE. Technical services rendered in an independent capacity should be covered in Article 14 (see professional services) instead.

*A professional service or other activities provided by individuals of an independent character was explained in Article 14. Malaysia corporations may not tax payments for professional service rendered by a China resident unless the China resident has a fixed place or stay in Malaysia for 183 days or more. An independent profession includes physicians, lawyers, engineers, architects, dentists, and accountants.

Elimination of Double Taxation

Article 21 of the DTA states that double taxation shall be eliminated by allowing tax credit to be made available to the home resident territory. It shall be credited against the tax levied in the first-mentioned territory on that resident. However, the amount of credit shall not exceed the amount of the tax in the first-mentioned territory.

Exchange of Information

Article 24 states that the competent authorities of the territories shall exchange such information (including documents or certified copies of the documents) relevant to the provision of this Agreement.

Please be aware below Warning:
The above contents are digested by Evershine R&D and Education Center in October 2021.
Regulations might be changed as time goes forward and different scenarios will adopt different options.
Before choosing options, please contact us or consult with your trusted professionals in this area.

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Toronto Evershine BPO Service Limited Corp.
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Manager Cindy Victoria Speak in Bahasa, English, and Chinese.
Whats App +886-989-808-249
wechatid: victoria141193

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