New tax treaty to boost trade

A new tax treaty will increase trade and investment between Canada and Hong Kong.

On Nov. 11, the Government of Canada signed an agreement with the Government of the Hong Kong Special Administrative Region of the People’s Republic of China for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.

“Our government is committed to reducing impediments to commerce with our valued commercial partners,” said Prime Minister Stephen Harper who witnessed the signing the agreement along with chief executive of the Hong Kong Special Administrative Region, Leung Chun-ying. “The new treaty will reduce tax barriers between Canada and Hong Kong. This will increase trade and investment flows while reducing incidents of double taxation and tax evasion.” 

The agreement, which is based on the Model Tax Convention on Income and on Capital developed by the Organisation for Economic Co-operation and Development, limits the rate of withholding tax to 5% for dividends paid between companies, to 15% for dividends paid in all other cases and to 10% for payments of interest and royalties. The agreement also exempts from withholding tax certain payments of interest.

The treaty will enter into force once it has been ratified by both countries. In Canada, it will have effect, in respect of taxes withheld at source on amounts paid or credited to non-residents, on or after the first day of January in the calendar year following that in which the agreement enters into force; in respect of other taxes, it will have effect for taxation years beginning on or after the first day of January in the calendar year following that in which the agreement enters into force.