What's the relationship between tax treaties and Chinese domestic tax rules?
The primary function of the tax treaty is to coordinate the tax treatment of one transaction or entity by two national tax systems, thus China's tax treaties will significantly clarify the tax treatment of foreign companies and foreign individuals doing business in China. Meanwhile, Chinese domestic tax rules, such as the Law of Individual Income Tax and the Law of Income Tax of Foreign Investment Enterprises and Foreign Enterprises, also have provisions concerning tax treatment above mentioned foreign companies and individuals. These rules may conflict with tax treaties. As a general rule, the tax treaties will override the domestic rules. However, if domestic tax rules have a more favorable tax treatment, tax treaties will not preclude the application of domestic tax rules. For example, a foreign individual will be free of individual income tax when he receives dividend from FIEs in China, although provisions of tax treaties always stipulate taxes on dividends.