The new China–Italy double tax agreement (DTA) entered into force on 19 February 2025. From 1 January 2026, it applies to withholding taxes (WHT). This agreement reshapes dividend tax and reclaim strategies by resetting rates, eligibility tests and processes. For investors between the two countries, the changes are material and require proactive planning.
Dividend:
From 2026, dividends paid across borders can qualify for a 5% treaty rate. To benefit, the beneficial owner must hold at least 25% of the payer’s capital for a continuous 365-day period that includes the dividend payment date. Where this threshold is not met, the treaty caps dividend WHT at 10%. This encourages larger, long-term holdings over short-term positions.
Interest:
The treaty caps interest tax at 10%. A reduced 8% rate applies where loans run for at least three years and fund investment projects, provided the lender is a financial institution. Certain government-linked payments, such as those involving Italy’s Cassa Depositi e Prestiti, may even be exempt. Loan design, lender type and purpose of funds now directly affect reclaim outcomes.
Royalties:
Royalty WHT remains capped at 10% for most intellectual property. However, royalties for industrial, commercial or scientific equipment are taxed on a reduced base, resulting in an effective 5% rate. This benefits leasing models and equipment-heavy operations. It is a notable change for multinationals with cross-border asset structures.
Capital gains:
Capital gains are source-taxable only when the seller held at least 25% in the company during the previous 12 months. Otherwise, taxation falls to the seller’s state of residence. This rule provides more predictability but requires detailed holding-period records.
Permanent establishment, anti-abuse and disputes: the governance layer matters
The treaty extends the threshold for construction permanent establishments to more than 12 months. For service PEs, the time limit is 183 days. It also adds a Principal Purpose Test in line with OECD BEPS rules. This makes beneficial ownership and treaty-shopping scrutiny more intense. Strong documentation is now essential to secure treaty benefits.
What this means for dividend tax and WHT reclaims in 2026
For those who do not meet the 25% + 365-day rule, the 10% ceiling still offers value. This compares well with Italy’s default 26% dividend WHT. Relief at source is possible if documentation is in order. Otherwise, investors must reclaim through the Italian Revenue Agency. The reclaim window is four years, but custodians often need earlier submissions. Refunds can take years to process, particularly where audits arise.
China-side mechanics: treaty self-assessment, but evidence is non-negotiable
In China, treaty benefits operate through a self-assessment system handled by withholding agents. Local tax bureaus then conduct checks. To use the new rates, investors must provide robust evidence, including residency certificates and beneficial ownership analysis. Without these, relief will be delayed or denied.
Eligibility pitfalls that will cost you money if you are not proactive
Many claims fail because investors cannot prove beneficial ownership, miss the 365-day test, or submit late. Restructuring events add complexity but may preserve the holding period if properly evidenced. Missing documents such as residency certificates, custodian statements or dividend advices will stall claims despite the more favourable treaty rates.
Rate cards at a glance for planning purposes
From 2026, the treaty caps WHT at 5% for dividends with the 25% + 365-day holding, 10% for all other dividends, 8% for qualifying interest, 10% otherwise, and 10% for royalties. Royalties on equipment use drop to an effective 5%. These are treaty ceilings only. Domestic law and anti-abuse rules still apply.
Relief at source or WHT refund—what optimises cash?
Italian custodians often apply the default 26% rate unless pre-cleared. Relief at source requires early submission of Form A-Dividends and residency certificates. Refunds are available within 48 months, filed through the Pescara Operational Centre. In China, investors should coordinate with payers to ensure withholding agents apply the correct rate. Over-withholding refunds are possible but depend on full compliance with tax bureau requirements.
Action items for 2025 year-end and 2026 go-live
Investors should review their holdings to confirm if the 25% + 365-day requirement will be met. Loan terms should be checked to see if the 8% rate applies. Royalty contracts should be updated to capture the reduced effective rate on equipment. Beneficial ownership must be documented with substance-based evidence, not just share registers. Claim files should be prepared in advance of Italy’s four-year deadline. These steps must be treated as essential, not optional.
Where Global Tax Recovery fits
At Global Tax Recovery, we turn the treaty into real cash benefits. We check eligibility against the new rules, manage documentation, and work with custodians and withholding agents. Proactive governance and tight claim control are critical, and this is the area we deliver in.
Conclusion
The new China–Italy DTA resets withholding tax on dividends, interest and royalties from 2026. The opportunities are significant, but so are the risks. Reduced rates will only materialise with proper planning, airtight documentation and timely action. Investors who prepare now will unlock treaty benefits and improve cash flow. Those who wait risk leakage and long refund delays. In this landscape, expert execution is the difference between recovered and lost capital. Global Tax Recovery provides the specialist support needed to secure those benefits and manage the complexities of both Italian and Chinese systems.
