Trying to reverting the history of a nationalist economical political, in the early 90’s the Brazilian government started the implementation of a series of measures aiming at a larger interaction of the internal economy with the world economy. In order to attract a larger participation of foreign capital in the Brazilian market, in 1991 it was signed the Convention between China and Brazil to avoid double taxation. Such Agreement was regulated in Brazil by the Legislative Decree no. 85/92 and 762/93.
Such Agreement provides for, regarding Brazil, the federal income tax (except for the supplementary income tax and the tax on less relevant activities).
Regarding China, the individual income tax; the corporate income tax concerning the business associations with Chinese people and the one related to external investments; the income tax related to foreign companies and the local income tax that are object of the Agreement.
The Agreement follows the normal pattern of the Organização de Cooperação e Desenvolvimento Econômico [Cooperation and Economical Development Organization] (OCDE), providing, at first, for the general conditions concerning its application, and clarifying the terms and concepts that are set forth therein.
In the second part of the Agreement there are the provisions that properly deal with the taxes in question, in several situations such as: real state property; profits of companies and Air and Maritime Navigation; taxation of associated companies, dividends, interest, royalties, capital earnings, work with and without employment bond, compensation of directors, artists and athletes, among others.
For instance, regarding the profit taxation of a company, the general rule is that the profits of a company from a signatory State (for example, a Chinese company) are taxable only in such State, unless the company practices its activities in another signatory State, by means of a permanent establishment therein (thus, in our example, a Chinese company will be taxed in Brazil only if it practices its activities in said country by means of a permanent establishment therein). In this case, its profits will be taxable in that other signatory State (in this case, Brazil), but only if it corresponds to this permanent establishment (i.e. only regarding the profits earned by the establishment situated in Brazil).
Regarding the dividends, the Agreement establishes that, being paid by a company residing in a signatory State, the person residing in the other signatory State are taxable in such other State. That is, if a Chinese company placed in Brazil pays dividends to a resident in China, such dividends will be taxed by the Chinese government *.
At last, the agreement also provides for the determination of information interchange between thee company of both Countries, aiming at giving full application to the treaty and also preventing tax evasion actions.
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* Nowadays the dividend distribution is not taxed in Brazil