Trade and investment treaties
China-Switzerland FTA
In 2013, China and Switzerland signed a comprehensive FTA, marking a significant milestone in their economic relations. The agreement was aimed at enhancing market access for goods and services, improving intellectual property protection, and fostering economic cooperation. Key provisions of the China-Switzerland FTA include:
Tariff reduction: The FTA dismantles tariffs fully or partially on the vast majority of bilateral trade. Tariff elimination is immediate for some products, while others undergo phased reductions over transition periods of 5, 10, 12, or even 15 years.
Non-tariff barriers: The agreement addresses technical barriers to trade, sanitary, and phytosanitary measures. Sector-specific cooperation agreements are in place to reduce non-tariff barriers, facilitating smoother trade flows.
Intellectual property protection: The FTA improves legal security for the protection of intellectual property rights, offering standards that surpass those established under the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), particularly in enforcement.
Trade in services: The FTA includes enhanced rules compared to the General Agreement on Trade in Services (GATS) under the WTO, ensuring more clearly defined approval processes and improved market access for various service sectors.
Investment protection and trade facilitation: The FTA introduces measures for customs procedures, trade facilitation, and investment protection. It also includes provisions for transparency in government procurement and safeguards for environmental and labor standards related to trade.
The agreement also established a Joint Committee, which oversees the implementation, development, and resolution of issues within the FTA. Through this cooperation framework, China and Switzerland have continued to strengthen their economic ties, promoting trade liberalization and sustainable growth.
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In September 2024, China and Switzerland officially began negotiations to upgrade their existing FTA. This upgrade is intended to enhance the trade and investment relationship between the two countries, building on a decade of successful bilateral cooperation. The talks were announced by Chinese Minister of Commerce Wang Wentao and Swiss Federal Councilor Guy Parmelin through a livestream event, with both leaders expressing the importance of intensifying consultations to achieve a high-level agreement based on mutual benefits.
China-Switzerland bilateral investment agreement
In 2009, China and Switzerland signed a bilateral investment treaty (BIT) to promote and protect mutual investments between the two nations. The agreement aims to foster economic cooperation by creating favorable conditions for investors, ensuring a stable and transparent investment environment.
Key provisions of the China-Switzerland BIT include:
Investment protection: The BIT guarantees protection against expropriation, nationalization, and discriminatory practices, ensuring that investments are treated fairly. Compensation for expropriation is based on the fair market value of the investment at the time of the expropriation.
Fair and equitable treatment: Investors from both China and Switzerland are guaranteed treatment that is no less favorable than that accorded to domestic investors or investors from third countries. This ensures fair treatment in the management, maintenance, and enjoyment of investments.
Dispute resolution mechanisms: The BIT provides mechanisms for resolving investment-related disputes, including negotiation, mediation, and international arbitration. An investor-state dispute settlement (ISDS) clause allows investors to submit disputes to bodies such as ICSID or ad hoc tribunals under UNCITRAL rules.
The agreement also facilitates the free transfer of investment-related funds, including returns, capital gains, and compensation, in a freely convertible currency without delay.
China-Switzerland double taxation avoidance agreement
On September 25, 2013, China and Switzerland signed a new double taxation agreement (DTA), replacing the 1990 treaty. Taking effect on January 1, 2014, the agreement aligns with China’s recent efforts to revise DTAs with European nations such as Belgium and the Netherlands. The agreement is designed to avoid double taxation on income and capital between the two countries, streamlining tax policies for cross-border investments.
The DTA pertains to income and capital taxes imposed by both China and Switzerland. In China, it covers:
In Switzerland, the agreement applies to:
Federal, cantonal, and municipal taxes on income and capital.
The revised DTA also introduces beneficial withholding tax (WHT) rates on passive income. Specifically:
Dividends: Reduced from 10 percent to 5 percent when the beneficial owner is a company that holds at least 25 percent of the capital of the paying company. A full exemption is granted for institutions like China Investment Corporation (CIC) and the National Council for Social Security Fund.
Interest: Maintained at 10 percent with exemptions for government-related entities.
Royalties: Reduced from 10 percent to 9 percent.
The revised DTA also modifies capital gains taxation. Under the prior agreement, Swiss investors could dispose of shares in Chinese tax resident enterprises (TRE) without paying taxes in China, except for land-rich companies. However, under the revised DTA, China may impose a 10 percent tax on gains derived from the sale of shares if the Swiss investor holds 25 percent or more of the company’s capital during the 12 months prior to the sale.
The agreement further strengthens anti-avoidance measures through the inclusion of a ‘limitation of benefit’ clause, preventing misuse of reduced tax rates, and enhancing the exchange of information between the two countries.
Additionally, the definition of “permanent establishment” (PE) has been revised:
Construction PE: The threshold has been extended from 6 months to 12 months.
Service PE: Revised to 183 days, aligning with China’s recent DTA revisions with other European countries.
With these updates, the DTA aims to facilitate smoother economic relations between China and Switzerland, offering more clarity on tax obligations for cross-border investors.
Multilateral treaties
China and Switzerland, both members of the WTO, are signatories to various multilateral treaties concerning trade and investment. These include:
TRIPS, which mandates WTO members to extend intellectual property rights to owners in any member state. It incorporates a most-favored-nation (MFN) clause, ensuring equal treatment for IP rights protection across all member countries. Additionally, it provides mechanisms for dispute resolution and compensation.
The Agreement on Trade-Related Investment Measures (TRIMs), which prohibits the implementation of investment measures that restrict trade between members. This includes measures like local content requirements, which mandate the use of locally-produced goods or services by companies operating in a market.
GATS, which grants most-favored-nation status to service providers of any WTO member, excluding governmental services such as social security, public health, education, and certain services related to air transport.
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Publish date : 2024-09-27 06:54:00
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