On November 11, 2012 – Hong Kong signed it’s 26th comprehensive agreement for the avoidance of double taxation and the prevention from tax evasion on income and capital with Canada to increase trade between the two economies. The agreement will come into force after both sides complete ratification procedures. The order is subject to negative vetting by the Legislative Council.
Under the deal, the tax they pay in Hong Kong can be offset against tax payable in Canada. The same applies for Hong Kong nationals working in Canada. Double taxation will be avoided in that any Canadian tax paid by Hong Kong companies doing business through a permanent establishment in Canada will be allowed as credit against the tax payable in Hong Kong.
Under the agreement Canada’s withholding tax on Hongkongers’ investment interests will be capped at 10 per cent, down from 25 per cent. The Canadian dividends withholding tax on Hong Kong residents will be reduced from the current rate of 25 per cent to 15 per cent, and will be further lowered to 5 per cent upon fulfilling certain conditions. Hong Kong-based airlines that fly to Canada will be taxed at the city’s corporate rate of 16.5 per cent and will not be taxed in Canada.
Both economies see a positive impact on the business environment and Hong Kong intends to continue its effort to expand its network of CDTAs with trading and investment partners.