Hong Kong and Canada have signed an agreement for the avoidance of double taxation both for companies and for individuals deriving income from the two states. The main eligibility criterion that needs to be satisfied in order for the treaty to apply is that the individual or company must be a resident of one or both Signatory Parties. The agreement also enforces some important procedures regarding the prevention of fiscal evasion.
Our law firm in Hong Kong offers company formation and taxation services and can help you if you are a Canadian foreign investor in Hong Kong or vice-versa.
Table of Contents
The general provisions of the Hong Kong – Canada double tax treaty
The Hong Kong – Canada double tax treaty (DTA) is similar to other double tax agreements concluded by the Special Administrative Region. This agreement is particularly important for foreign investors in Hong Kong who thus benefit from taxation in only one country, instead of having to pay a dual income tax for the gained profits.
Withholding tax rates on dividends are subject to a reduction under the double tax treaty: while the general tax on dividends is usually 15%, a treaty in force allows for a rate of only 5% or a complete exemption in some cases. The withholding tax on royalties is usually 10%.
The double tax treaty applies for residents who can be Hong Kong residents, Canadian residents or both and permanent establishments: a fixed place of business in Hong Kong and/or Canada. This type of establishment can include a branch in Hong Kong or an office belonging to a foreign Canadian corporation, a factory, workshop or place of management.
Companies incorporated in Hong Kong are subject to the usual corporate income tax rate and other taxes, as applicable.
Taxes covered by the Hong Kong – Canada DTA
The taxes to which the double tax treaty between the Special Administrative Region and Canada applies to are:
– in the case of Hong Kong: the taxes levied by the Hong Kong Government, including the corporate income tax or the personal income tax;
– in the case of Canada: the taxes imposed by the Government under the Income Tax Act.
The treaty also applies to taxes that are charged in place of existing ones or in addition to the taxes already levied. The two signatory states have the obligation to notify one another of any relevant changes to their applicable taxation regime.
For more information about taxation of foreign legal entities or individuals in Hong Kong please contact our Hong Kong law firm.