Haier Smart Home Co., Ltd.: Dividend announcement

Haier Smart Home Co., Ltd.

dividend per share of EUR 0.1043413 gross

dividend per share of EUR 0.0939072 less 10% withholding tax in China

payable from August 16, 2024

for financial year 2023. Those shareholders for whom shares in the company will be booked on August 15, 2024, (date of record) are entitled to a dividend.

The exchange rate of 1 EUR = 7.6797 RMB is based on the average exchange rate of a week immediately prior to the Annual General Meeting.

The shares of the company will be listed in the sub-segment of the regulated market with additional post-admission obligations on the Frankfurt Stock Exchange (Prime Standard) from August 16, 2024 “ex-dividend.”

The payment of the dividend via Clearstream Banking AG is generally subject to the deduction of Chinese withholding tax of 10%. The Chinese withholding tax can generally be credited against the German income tax payable on Chinese income or be deductible for tax purposes when determining income.

A domestic entity paying out the investment income (i.e., as a rule, the respective custodian) will generally pay the dividends of a company domiciled in the People’s Republic of China to the shareholder, who is subject to unlimited tax liability in Germany, subject to the deduction of German withholding tax (final withholding tax). The withholding tax is generally 25% plus a solidarity surcharge of 5.5% (effective tax rate thus 26.375%) and, if applicable, plus church tax (depending on the individual’s religious denomination and state of residence). The gross dividend serves as the basis of assessment for the capital gains tax.

The domestic paying agent is always obliged to deduct capital gains tax if the shareholders have not submitted a so-called non-assessment certificate or a so-called exemption order. Whether the dividend is actually taxable for the shareholder is irrelevant for the deduction of capital gains tax. It is therefore possible to refrain from deducting tax if, among other criteria

• the creditor of the investment income is a natural person with unlimited tax liability and this person proves to the domestic paying agent by submitting the original of a valid non-assessment certificate that he or she will probably not be assessed for income tax;
• the creditor of the investment income is a natural person with unlimited tax liability and has issued a valid exemption order. An exemption order is the creditor’s private written order to the withholding agent not to deduct capital gains tax up to the tax-free maximum amount of EUR 1,000 (or EUR 2,000 in the case of married couples/partners in life assessed jointly);
• the creditor of the investment income is a tax-exempt corporation or a domestic legal entity under public law;
• in the case of the creditor of the investment income, this is part of the business income and the investment income tax in the case of the creditor of the investment income would permanently be higher than the total income or corporation tax to be assessed due to the nature of its business. This must be proven by a certificate from the tax office responsible for the creditor;
• the creditor of the investment income is a corporation, association of persons or estate subject to unlimited tax liability in Germany that serves tax-privileged purposes. This could apply to associations, for example. The tax concession must be evidenced by a certificate from the tax office responsible for the creditor.

For the individual requirements in each case, reference is made here to the provisions of German tax law (esp. Sec. 43 (2), (3) in conjunction with Sec. 44a of the German Income Tax Act (EStG)). If it is not possible to withhold German withholding tax, the withholding agent, i.e. the domestic paying agent, must check whether the Chinese withholding tax levied in the amount of the withholding tax right under the German-Chinese double taxation agreement can be credited directly against the withholding tax in the withholding procedure. This possibility only exists insofar as the dividends are counted as income from capital assets, which is the case in particular for natural persons with shareholdings as private assets (Section 43a (3) sentence 1 EStG; BMF dated January 18, 2016, BStBl. I 2016, p. 85, para. 202 in conjunction with the BMF dated March 31, 2022, BStBl. I 2022, p. 328, para. 3). According to the overview of the Federal Central Tax Office (“BZSt”) on the rates of creditable foreign withholding taxes, the creditable Chinese withholding tax amounts to 10% if there is no exemption. If the Chinese withholding tax is credited against the capital gains tax by the paying agent, the capital gains tax will only be credited in the amount of the difference to a tax deduction of 25%. If the crediting of the Chinese withholding tax on the capital gains tax by the paying agent is not possible, the foreign tax cannot be credited in the deduction procedure at the level of the paying agent. The shareholder then has the option of obtaining relief in the assessment procedure.

The taxation of dividends for persons with unlimited tax liability in Germany can be summarized as follows:

1. Natural persons who hold the D shares as part of their private assets for tax purposes:

• The gross dividend is generally subject to the special final withholding tax rate (25% plus the solidarity surcharge of 5.5% and church tax, if applicable). The tax liability is deemed to be satisfied by the proper deduction of the capital gains tax.
• In the context of the assessment, there is an option to tax the gross dividend at the standard tax rate via the so-called favorable tax assessment. In this case, the reduced German capital gains tax pursuant to Sec. 43a (3) sentence 1 EStG is to be credited without limitation against the income tax within the scope of Sec. 36 EStG. The Chinese withholding tax taken into account in the capital gains tax deduction via Sec. 43a (3) sentence 1 EStG is to be credited against the additional standard income tax payable on the added capital income (Section 32d (6) sentence 2 EStG). 
• Actual income-related expenses are not deductible. For this purpose, the shareholder is granted a lump-sum savings allowance of EUR 1,000 or, in the case of married couples/partners in life assessed jointly, of EUR 2,000.

2. Natural persons who hold the D Shares as business assets for tax purposes or through a commercial partnership:

• The gross dividends are taxable at 60% under the partial income method. Related business expenses can be claimed at a tax-reducing rate of 60%.
• The German capital gains tax levied is creditable against income tax without limitation; even a refund is possible if no income tax is due (Sec. 36 (4) EStG).
• The Chinese withholding tax, which is not subject to any further reduction, must be credited against the income tax attributable to the foreign income from China within the limits of Sec. 34c EStG (so-called per-country-limitation, Sec. 68a EStDV). Thus, business expenses in economic connection with the dividend reduce the credit volume. If no income tax arises (e.g. due to domestic losses), the Chinese withholding tax is not creditable; no refund is possible. Upon application, a tax deduction is possible in the tax return instead of a credit when determining the income.
• For trade tax purposes, dividends are generally recognized at 100% if the shareholding (in the nominal capital) was less than 15% at the beginning of the assessment period (January 1).

3. Corporate income tax entities (including corporations subject to corporate income tax):

• In the case of corporate income tax entities, the gross dividend is generally fully subject to corporate income tax, unless the participation was 10% or more at the beginning of the calendar year. If the participation comprises 10% or more, the gross dividends are effectively 95% exempt from corporate income tax.
• Operating expenses in connection with the dividends can generally be taken into account.
• The German capital gains tax withheld and remitted by the paying agent can always be credited against corporate income tax; even a refund is possible if no corporate income tax is due (Sec. 36 (4) EStG).
• The Chinese withholding tax, which is no longer subject to a reduction claim, must be credited against the corporate income tax attributable to the foreign income from China within the limits of Sec. 26 of the German Corporate Income Tax Act (KStG) in conjunction with Sec. 34c of the German Income Tax Act (EStDV) (the so-called per-country-limitation, Sec. 68a of the German Income Tax Ordinance (EStDV)). Thus, business expenses in economic connection with the dividend reduce the credit volume. If no corporate income tax arises (e.g. due to domestic losses), the Chinese withholding tax is not creditable; no refund is possible. Upon application, a tax deduction is possible in the tax return instead of a credit when determining the income.
• For trade tax purposes, dividends must be recognized at 100% if the shareholding (in the nominal capital) was less than 15% at the beginning of the assessment period (January 1).

In the case of foreign shareholders not resident in Germany, the Chinese withholding tax may, if applicable, be credited against any tax payable on the dividend in the relevant country in accordance with the national tax regulations of the relevant country or the provisions of a corresponding double taxation treaty.

We would like to point out that the above explanations are of an overview nature and can therefore neither be a complete presentation of all national or international tax aspects, nor can they take the particularities of specific individual cases into account.

Investors are advised to seek advice from a tax advisor on the specific tax consequences of their investment.

Frankfurt/Main, July 2024

On behalf of Haier Smart Home Co., Ltd.
Deutsche Bank
Aktiengesellschaft