China-Nepal DTA Protocol Finally Takes Effect

The double tax agreement (DTA) signed between China and Nepal in 2001 came into force on December 31, 2010, after the two countries completed their respective domestic legal procedures, China’s State Administration of Taxation announced (SAT Announcement [2011] No. 11) on January 30. The DTA and its protocol apply to the income received in the tax years starting January 1, 2011.

The “Protocol between the People’s Republic of China and the Kingdom of Nepal Government for the Avoidance of Double Taxation and Prevention of Fiscal Evasion” was signed in Kathmandu, Nepal in 2001. The agreement applies to distinct types of income taxes that take place in the two countries. It also specifies the definition of tax residents, as well as the calculation and collection methods of taxable income from properties, business operation profits, joint ventures of both parties, dividends, interest, royalties, capital gains, independent and dependent personal services, director’s fees, pensions, social insurance, government services, individuals who are artists, athletes, teachers, researchers, students and interns, and other revenue-earning avenues.

In order to avoid double tax collection, the protocol stipulates that between the two countries, while the tax residents of Country A work in Country B, their income tax levied by Country B in accordance with the agreement shall be exempt in Country A, as long as the total amount of tax exemption does not exceed the total amount of tax that should originally be collected on corresponding items according to Country A’s tax regulations. The same double tax avoidance method shall apply to tax residents of Country B while they work in Country A.

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