On October 29, 2013, the Canadian government formally ratified a tax treaty with the Government of Hong Kong Special Administrative Region of the People’s Republic of China (Hong Kong). This treaty, (originally signed on November 11, 2012) minimizes the possibility of tax discrimination and double taxation, and further encourages healthy trades between Canada and Hong Kong.
Here is a brief overview of the taxpayer benefits found within the treaty, prepared by our tax professionals at AG Tax:
Summary of Taxpayer Benefits provided by the Canada-Hong Kong Tax Treaty
•The business profits generated by a resident of Canada or Hong Kong are only subject to taxation in the other jurisdiction when such profits are attributable to the permanent establishment in the other jurisdiction.
•Dual resident tie-breaker for individuals is included. Dual residency of a person other than an individual must be settled by mutual agreement of the competent authorities of the Parties.
•Withholding tax on dividends is limited to 15%. A preferential rate of 5% applies to dividends received by the beneficiary owner (a company other than partnership) which owns 10% or more, either directly or indirectly, of the voting power of the company paying such dividends.
•Withholding tax on interest payments is limited to 10% for non-arm’s length debt and withholding tax on interest payments is 0% for arm’s length debt. Withholding tax on interest payments for both non-arm’s length debt and arm’s length debt is not applicable on participating-debt interest. Royalties on withholding tax will generally be limited to 10%. There is no elimination on withholding tax on certain royalty payments, (such as copyright in respect of the production or reproduction of literary, dramatic, musical or artistic works). As well, there is no elimination on withholding tax on royalty payments relating to the use of computer software, or industrial, commercial or scientific information.
•Capital gains on immovable property, (such as land and buildings), may be taxed in the other jurisdiction if more than 50% of the value is derived indirectly or directly from the disposition of such property.
•Limitation of benefits and anti-treaty shopping provisions are included in the Canada-Hong Kong treaty in order to prevent persons (other than individuals) from taking advantage of certain treaty benefits without having any significant or substantial ties to specific jurisdictions.
It is important that tax payers engaged in business with Hong Kong are familiar with the Canada Hong-Kong Treaty and plan accordingly. In Canada, the Canada-Hong Kong treaty will be effective after January 1, 2014.
AG Tax LLP Can Help
Properly applying tax treaties to situations and identifying the correct forms to file is a complex process. Taxpayers should seek professional advice to determine if the treaty applies to their circumstances. The specialists at AG Tax are well versed in international tax issues, and can assist with these complex treaty issues in a timely, accurate and cost-effective manner.
AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- State Sales Tax & E-commerce Taxation
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.