On May 24, Premier Li Keqiang and a delegation of Chinese senior officials arrived in Chile. During the visit, China and Chile signed a double taxation avoidance agreement (DTA), updated their Free Trade Agreement and agreed on setting up an RMB clearing center in Chile.
China and Chile have developed a strong diplomatic relationship over the years. Chile was the first South American country to establish diplomatic ties with China, in 1970. It is also the first Latin American country to have signed a Free Trade Agreement with China, the other two being Peru and Costa Rica. This new DTA is therefore further evidence of the two’s strong bilateral ties, and will be a boon to companies from both countries.
Details of the Double Taxation Agreement
There was a symbolic side to China’s DTA with Chile, this being the 100th tax treaty China has signed with a foreign country. The agreement is in line with the latest international tax developments, since it deals with the topic of base erosion and profit shifting (BEPS) – one of the main issues discussed at the most recent G20 meeting. Thus, as China’s State Administration of Taxation (SAT) delegation pointed out, the DTA will balance the countries’ fiscal regulation in order to encourage Sino-Chilean foreign investments.
In addition, the People’s Bank of China (China’s central bank) announced on July 9 that the Chilean branch of China Construction Bank will be designated as offshore RMB clearing bank. This makes Chile the first Latin American country to have an RMB clearing center. In addition, a quota of RMB 50 million will be allocated to Chile in RMB Qualified Foreign Institutional Investor quotas (RQFII). The RQFII program allows stocks in China’s onshore markets to be purchased with offshore RMB. Furthermore, People’s Bank of China announced a three-year RMB 22 billion currency swap deal between the two countries.
To move the strong relationship between the two countries forward, a Memorandum of Understanding to upgrade the 2005 China-Chile Free Trade Agreement (FTA) has been signed. The amendment will mainly increase the number of goods covered, and provide new tax incentives. A joint working team is scheduled to start studying the terms and conditions of the upgraded FTA in August.
By Andrea Tonini
