Statutory rate without a valid treaty claim: 30%.
What sets the U.S.-China treaty apart
The U.S.-China treaty dates from 1984 and has never been modernized: dividends, interest and royalties are all capped at 10%, with equipment rentals effectively at 7%. It does not cover Hong Kong. It keeps a 183-day test for contractors, taxes directors' fees and performers without any threshold, and lets the U.S. tax "other income" and most capital gains arising here. For individuals it has some of the more generous education articles: three years for teachers and researchers, and $5,000 a year of earnings for students, both of which survive the saving clause.
Common payments at a glance
| Payment | What the U.S. payer does | Article |
|---|---|---|
| Dividend to a Chinese resident | 10%, at any ownership level | 9(2) |
| Interest | 10%. Exempt if owned by the Chinese government, its central bank or a wholly owned financial institution, or on debt they finance | 10(2), 10(3) |
| Software, patent, trademark, know-how or film royalty | 10% | 11(2) |
| Rent for industrial, commercial or scientific equipment | 10% of 70% of the gross: 7% of the payment | Protocol para. 6 |
| Payment to a Hong Kong resident | No treaty. Statutory 30% unless a Code exemption applies | 3(1)(a) |
| Chinese individual contractor working in the U.S. | Exempt if no fixed base and not more than 183 days in the calendar year | 13 |
| Chinese company providing services in the U.S. | Business profits: exempt unless a permanent establishment, which services create after more than 6 months in 12 | 7, 5(3)(c) |
| Director's fee from a U.S. company | Taxable in the U.S. without limit | 15 |
| Performer or athlete | Taxable with no threshold, unless under an agreed cultural exchange program | 16 |
| Visiting teacher or researcher | Exempt for up to 3 years in total, no dollar limit | 19 |
| Chinese student working in the U.S. | Up to $5,000 a year exempt | 20(c) |
| Prizes and other income arising in the U.S. | Taxable: the U.S. keeps the right to tax | 21(3) |
Assumes the payee is the beneficial owner, is resident under the treaty, meets its limitation-on-benefits article and gives a valid W-8BEN, W-8BEN-E or Form 8233. Article references are to the treaty as amended.
Rates on investment and other income
Treaty in effect generally from Jan. 1, 1987. Protocols in effect from: none listed. IRS country code CH.
| Income | 1042-S code | Treaty rate | Article |
|---|---|---|---|
| Interest paid by U.S. obligors, general | 01 | 10%z | 10(2) |
| Dividends paid by U.S. corporations, general | 06 | 10% | 9(2) |
| Dividends qualifying for the direct dividend rate | 07 | 10% | 9(2) |
| Royalties: industrial, commercial or scientific equipment | 10 | 7%v | 11(2) |
| Royalties: know-how and other industrial royalties | 10 | 10% | 11(2) |
| Royalties: patents | 10 | 10% | 11(2) |
| Royalties: motion picture and television copyrights | 11 | 10% | 11(2) |
| Royalties: copyrights (including software, unless the treaty says otherwise) | 12 | 10% | 11(2) |
| Pensions and annuities | 15 | 0% (exempt)t | 17(1) |
| U.S. Social Security benefits (applies to 85% of the payment) | 15 | 30% | 17(2) |
"n/a" means the payment type is not covered by the royalty article: equipment leasing is business profits (no withholding without a permanent establishment) or other income. Superscript letters are the IRS's own conditions, listed at the end of this page.
Pay for personal services performed in the United States
Each row is an exemption the treaty gives, with the limits the IRS lists. All conditions in a row must be met; if any is not, the pay is withheld on at 30% (contractors) or under the wage rules (employees). Services performed entirely outside the United States are foreign-source and need no treaty claim.
| Code | Purpose | Maximum presence in U.S. | Required employer or payer | Maximum amount | Article |
|---|---|---|---|---|---|
| 16 | Scholarship or fellowship grant515 | No specific limit | Any U.S. or foreign resident | No limit | 20(b) |
| 17 | Independent personal services78 | 183 days | Any contractor | No limit | 13 |
| 18 | Dependent personal services81758 | 183 days | Any foreign resident | No limit | 14 |
| 42 | Public entertainment29 | See article | 16 | ||
| 19 | Teaching4 | 3 years | U.S. educational or research institute | No limit | 19 |
| 20 | Remittances or allowances | No specific limit | Any foreign resident | No limit | 20(a) |
| 20 | Compensation during training or while gaining experience | No specific limit | Any U.S. or foreign resident | $5,000 p.a. | 20(c) |
Reading the U.S.-China treaty as a payer
Documents and dates
The agreement, a protocol and an exchange of notes were signed in Beijing on April 30, 1984, and a second protocol on May 10, 1986. The treaty has been in effect generally since January 1, 1987. Shipping and air transport income is covered by a separate 1982 agreement. The 1986 protocol, which adds the main anti-treaty-shopping tests, is not discussed in the Treasury technical explanation, which covers only the 1984 documents.
Hong Kong is not covered
The treaty defines the People's Republic of China by reference to where Chinese tax law applies, and the technical explanation says the agreement does not apply to Hong Kong, "even after 1997." A Hong Kong company or individual cannot claim treaty rates under this treaty, and the United States has no income tax treaty with Hong Kong. Payments to Hong Kong residents are withheld at 30% unless a Code exemption applies (portfolio interest, for example). The United States and Hong Kong do have a 2014 tax information exchange agreement, which does not reduce withholding.
Residence and limitation on benefits
A resident is a person liable to tax by reason of domicile, residence, head office, incorporation or similar criteria; citizenship is not a criterion (Art. 4). A company resident in both countries that the competent authorities do not assign gets no benefits, so dividends, interest and royalties paid to it are not reduced (Art. 4(3)).
The 1986 protocol requires a company or other non-individual to meet one of these to claim relief: more than 50% of each class of its shares owned by individual residents of either country, U.S. citizens, publicly traded companies or governments, and for dividends, interest and royalties no more than 50% of its gross income used to pay interest to non-qualifying persons; or substantial and regular trading of its principal class of shares on a recognized exchange. The tests do not apply if obtaining treaty benefits was not a principal purpose of the entity. The competent authorities must consult before denying benefits.
Dividends, interest and royalties
Each is capped at 10% of the gross (Arts. 9, 10, 11). There is no lower rate for a parent company. The 10% dividend rate also applies when the recipient is a nominee for a Chinese beneficial owner. Interest is exempt when beneficially owned by the Chinese government, a political subdivision, its central bank or a financial institution wholly owned by the government, and on debt indirectly financed by those bodies. Late-payment penalties are not interest. Related-party interest and royalties above an arm's-length amount lose the treaty rate on the excess.
Royalties cover copyrights (including film and broadcast tapes), patents, know-how, trademarks, designs, secret formulas and processes, information on experience, and rent for industrial, commercial or scientific equipment. For equipment rent, the tax applies to 70% of the gross amount (1984 Protocol para. 6), which the technical explanation describes as an effective maximum of 7%. Royalties contingent on sales or use are covered.
Services
China is one of the treaties that still has an independent personal services article. A Chinese individual's professional fees are taxable in the U.S. only if a fixed base is regularly available here (income attributable to it) or the person is present more than 183 days in the calendar year (Art. 13). The technical explanation says a hotel room is not a fixed base unless used as an office on a continuing basis.
A Chinese company's services, including consultancy, furnished through employees or other personnel create a permanent establishment if they last more than six months in aggregate within any 12-month period for the same or a connected project (Art. 5(3)(c)). Construction and assembly projects count after more than six months as well; drilling rigs and ships after more than three months.
Employees are exempt on U.S. pay only if present 183 days or fewer in the calendar year, paid by or for a non-U.S. employer and not borne by a U.S. permanent establishment or fixed base (Art. 14). Directors' fees may be taxed by the company's country without limit (Art. 15). Performers and athletes have no dollar or day threshold; they are exempt only under a cultural exchange program agreed by both governments (Art. 16).
Pensions and Social Security
Private pensions for past employment are taxable only in the country of residence (Art. 17(1)). Social Security and public welfare payments are taxable only in the paying country (Art. 17(2)), so U.S. Social Security paid to a Chinese resident is withheld on, and the rule holds even for U.S. citizens because it is an exception to the saving clause.
Teachers, researchers and students
A Chinese teacher or researcher who comes to teach, lecture or do research at an accredited educational or scientific research institution is exempt on that pay for no more than three years in total, with no dollar limit (Art. 19). The technical explanation's example: research in 1986, 1987 and 1989 is exempt, but 1990 is not, because three years have been used. Research for private benefit rather than the public interest does not qualify.
Students and trainees present solely for education or training are exempt on payments from abroad for maintenance and education, on grants and awards from governments and scientific, educational or tax-exempt organizations, and on up to $5,000 a year of income from personal services, for as long as reasonably necessary to complete the education (Art. 20). Both articles are exceptions to the saving clause (1984 Protocol para. 2), so a Chinese student who becomes a U.S. resident alien for tax purposes keeps the $5,000 exemption.
Other income and gains
Article 21 makes other income generally taxable in the country of residence, but paragraph 3 lets the source country tax income arising there, so prizes and winnings from U.S. sources are withheld on. Article 12(6) does the same for gains arising in the U.S., beyond the real property and 25% shareholding rules.
Where payers get it wrong
- Treating a Hong Kong payee as a Chinese resident. The treaty does not apply to Hong Kong.
- Withholding 10% on the full equipment rent. The tax applies to 70% of the gross, an effective 7%.
- Assuming other income and gains are exempt at source. Articles 21(3) and 12(6) keep U.S. taxing rights for income and gains arising in the U.S.
- Exempting a performer or a director under the 183-day rule. Performers have no threshold outside agreed cultural programs, and directors' fees are fully taxable at source.
- Dropping the student exemption when the student becomes a resident alien. Articles 19 and 20 survive the saving clause.
Read from the treaty documents: Agreement, Protocol and Exchange of Notes of Apr. 30, 1984; Protocol of May 10, 1986; Treasury Technical Explanation of the 1984 documents. Texts and technical explanations: United States income tax treaties, A to Z.
How the payee claims these rates
- Individuals claim a reduced rate on interest, dividends, royalties or pensions in Part II of Form W-8BEN: treaty country, article, rate and any conditions. Most claims need a U.S. TIN or a foreign TIN on the form.
- Entities claim in Part III of Form W-8BEN-E, which also asks which limitation-on-benefits test the entity meets (the China treaty's LOB provision is the Protocol).
- Pay for services performed in the United States by an individual is exempted on Form 8233, not the W-8BEN, one form per tax year and per payer.
- The payer reports the payment on Form 1042-S with the income code shown above and chapter 3 exemption code 04 (exempt or reduced withholding under a tax treaty). From 2026 an exemption code is required whenever less than 30% is withheld.
The rate in a table is the most the United States may withhold under the treaty, not an entitlement. The payee has to be a resident of China under the treaty, the beneficial owner of the income, and (for entities) meet the limitation-on-benefits article, and the payer has to hold a valid certificate before the payment. The IRS tables are a summary: check the article itself when the amount is material.
Questions payers ask
What is the U.S. withholding rate on dividends paid to a resident of China?
10% on dividends generally and 10% on dividends qualifying for the direct dividend rate, under Article 9(2), if the shareholder documents the claim on a W-8BEN or W-8BEN-E. Without a valid claim the rate is 30%.
What is the U.S. withholding rate on royalties paid to a resident of China?
10% on copyright and software royalties (income code 12), 10% on patent royalties and 10% on film and television royalties, under Article 11(2).
What is the U.S. withholding rate on interest paid to a resident of China?
10% under Article 10(2), before considering the Code's own exemptions for portfolio interest and bank deposit interest.
Is a contractor from China working in the United States exempt from U.S. withholding?
Under Article 13, pay for independent personal services is exempt if the contractor is present in the United States for no more than 183 days, subject to the conditions in the article. An individual claims the exemption on Form 8233; without it, withhold 30%.
Do we withhold on a contractor from China who works only outside the United States?
No. Pay for services performed entirely outside the United States is foreign-source income: no withholding and no Form 1042-S. Keep the contractor's W-8BEN or W-8BEN-E on file.
Can a Hong Kong company claim the U.S.-China treaty rate?
No. The treaty does not apply to Hong Kong, and the United States has no income tax treaty with Hong Kong. U.S.-source income paid to a Hong Kong resident is withheld at 30% unless a Code exemption applies.
What is the withholding rate on equipment rent paid to a Chinese company?
10% applied to 70% of the gross rent, an effective rate of 7% of the payment, under paragraph 6 of the 1984 protocol.
Does the Chinese student $5,000 exemption continue after the student becomes a U.S. resident?
Yes. Article 20 is an exception to the saving clause, so the exemption continues for a student who becomes a resident alien, as long as the student remains in the U.S. for education or training.
The IRS notes behind the figures
Notes to the rates (IRS Table 1)
- t The provision does not apply to annuities. For Denmark, annuities are exempt from U.S. tax.
- v In China, 10% rate of tax imposed on 70% of gross royalties for rentals of industrial, commercial, or scientific equipment.
- z An exemption from tax or a reduced rate of tax may apply to interest that is paid to the government of a Contracting State or a political subdivision or local authority thereof. An exemption or reduced rate may also apply to certain other types of interest, including interest paid to certain banks or other financial institutions, interest derived on loans guaranteed or insured by the government of a Contracting State, and interest arising in connection with commercial credit for goods or services. Please refer to the interest article of the relevant treaty for specific information. Income Tax Treaties
Notes to the services table (IRS Table 2)
- 4 Does not apply to compensation for research work primarily for private benefit.
- 5 Grant must be from a nonprofit organization. In many cases, the exemption also applies to amounts from either the U.S. or foreign government. For Indonesia and the Netherlands, the exemption also applies if the amount is awarded under a technical assistance program entered into by the United States or the foreign government, or its political subdivisions or local authorities.
- 7 Exemption does not apply to the extent income is attributable to the recipient's fixed U.S. base. For residents of Korea and Norway, the fixed base must be maintained for more than 182 days (for Norway, 30 days in the case of the exploration or exploitation of the seabed and sub-soil and their natural resources); for residents of Morocco, the fixed base must be maintained for more than 89 days.
- 8 Does not apply to fees paid to a director of a U.S. corporation.
- 15 Does not apply to payments from the National Institutes of Health under its Visiting Associate Program and Visiting Scientist Program.
- 17 The exemption does not apply if the employee's compensation is borne by a permanent establishment (or in some cases a fixed base) that the employer has in the United States.
- 29 The exemption applies only to income from activities performed under special cultural exchange programs agreed to by the U.S. and Chinese governments.
- 58 Remuneration derived by a resident of a contracting State in respect of an employment as a member of the regular compliment of a ship or aircraft operated in international traffic may only be taxed in that State.
Transcribed from the IRS Tax Treaty Tables. Treaty texts and technical explanations: United States income tax treaties, A to Z.
Other treaty countries
Australia · Austria · Bangladesh · Barbados · Belgium · Bulgaria · Canada · Chile · Commonwealth of Independent States · Cyprus · Czech Republic · Denmark · Egypt · Estonia · Finland · France · Germany · Greece · Iceland · India · Indonesia · Ireland · Israel · Italy · Jamaica · Japan · Kazakhstan · Latvia · Lithuania · Luxembourg · Malta · Mexico · Morocco · Netherlands · New Zealand · Norway · Pakistan · Philippines · Poland · Portugal · Romania · Slovak Republic · Slovenia · South Africa · South Korea · Spain · Sri Lanka · Sweden · Switzerland · Thailand · Trinidad and Tobago · Tunisia · Turkey · Ukraine · United Kingdom · Venezuela