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Secretary for Financial Services & the Treasury Prof KC Chan today signed an agreement with Canada for double taxation avoidance and fiscal evasion prevention with respect to taxes on income on behalf of the Government.
Chief Executive CY Leung and Canadian Prime Minister Stephen Harper witnessed the signing ceremony.
It is the 26th comprehensive avoidance of double taxation agreement concluded by Hong Kong with its trading partners.
Welcoming the agreement, Prof Chan said it will help investors better assess their potential tax liabilities from cross-border economic activities, and further strengthen economic and trade ties between the two places.
Under the agreement, tax paid in Hong Kong will be allowed as a credit against tax payable 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.
Hong Kong residents receiving interest from Canada are subject to Canada's withholding tax. Canadian withholding tax on royalties will be capped at 10%. The Canadian dividends withholding tax will also be reduced to 15%.
Hong Kong airlines operating flights to Canada will be taxed at Hong Kong's corporation tax rate only. Profits from international shipping transport earned by Hong Kong residents that arise in Canada will not be taxed there.
The agreement has incorporated an article on exchange of information.
It will come into force after the completion of ratification procedures on both sides.