Tax memo: Canada signs treaty with Hong Kong — Good news for cross-border transactions

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Memo No. 2012-45

On November 11, 2012, Canada and the Hong Kong Special Administrative Region of the People’s Republic of China (Hong Kong) signed a new tax treaty (the Treaty) and related protocol.

The Treaty aims to remove tax barriers to encourage trade and investment between Canada and Hong Kong. In particular, it will:

  • reduce the rates of withholding tax applicable to certain cross-border payments; and
  • ensure that double taxation does not arise for individuals and companies doing business or earning income in the other jurisdiction.

As expected, the Treaty also contains an exchange of information article. The Treaty will enter into force once ratified by Canada and Hong Kong.

The Treaty is based on the Model Tax Convention on Income and on Capital developed by the Organisation for Economic Co-operation and Development. Its signing occurred relatively quickly, considering that negotiations began only in mid-2011.

This Tax memo provides an overview and outlines the reduced withholding tax rates on certain cross-border payments.