Double Taxation Agreement between Spain and China
4 Noviembre, 2025
In May 2021, the new agreement between Spain and China came into effect, approved with the aim of eliminating double taxation in relation to income tax, corporate tax, and the Non-Resident Income Tax.
This agreement updates and adjusts the bilateral tax framework, effectively replacing the previous agreement made in Beijing on November 22, 1990, which is no longer in force.
The agreement applies to individuals residing in Spain and China concerning income taxes imposed by each of them, regardless of the system of taxation used.
The agreement establishes mechanisms to eliminate double taxation:
When a resident of China earns income in Spain, the amount of tax on that income payable in Spain under the provisions of this Agreement may be deducted from the Chinese tax owed by this resident. Similarly, in Spain, the tax paid in China may be deducted for a Spanish resident earning income in China.
Regarding the distribution of dividends, Spain will allow a deduction for the corporate tax effectively paid by the company distributing the dividends, corresponding to the profits from which these dividends are paid, in accordance with Spain's internal legislation. However, this deduction cannot exceed the portion of the income tax, calculated before the deduction, corresponding to the income that may be subject to taxation in China. Thus, the withholding tax rate is reduced from 10% to 5% on dividends paid to a company that holds at least a 25% stake in the distributing entity, provided that the stake is held for at least one year.
Additionally, the agreement refers to the effective exchange of tax information between the two countries to apply the content of the agreement effectively for the administration or enforcement of domestic laws concerning taxes of any kind. The provisions of the agreement do not prejudice the right of the States to apply their own rules and measures regarding the prevention of tax avoidance, explicitly defined as such or not, as long as they do not result in taxation contrary to the agreement.
Other relevant matters include:
Capital gains derived from the transfer of real estate shares, whether direct or indirect, may be subject to taxation, in addition to the residence country of the seller, in the country where the property is located. The same applies to gains derived from the transfer of shares in entities in which the seller has held, directly or indirectly, at least a 25% stake during the year preceding the transfer.
Similarly, capital gains derived from the transfer of shares in listed entities may be taxed in the State where the seller resides and also in the country where the entity is resident, provided the total shares sold in the year do not exceed 3% of the value of the listed shares.
An exemption at source is established for interest payments related to the sale on credit of commercial or scientific equipment and for royalties derived from the leasing of such equipment.
Royalties will be taxed at a maximum of 10% if the beneficial owner is a resident of the other State (eliminating the reduction of such taxation on 60% of the gross amount of royalties for those paid for the use or right to use industrial, commercial, or scientific equipment).
The minimum time to consider that a Spanish or Chinese taxpayer has a permanent establishment in the other country for construction, installation, or assembly projects is extended from 6 to 12 months.
The exemption as a method to avoid double taxation on income earned in China by individuals residing in Spain is eliminated. Double taxation will, in all cases, be avoided through the credit method, with deductions for both the tax paid directly in China and, in the case of dividends, the Chinese tax imposed on the profits from which the dividend is paid.
