Hong Kong and Canada have signed a treaty to avoid double taxation and increase trade between the two economies.
Currently, income earned by Canadians in Hong Kong who are still deemed residents of Canada is taxable both here and at home.
Under the deal, the tax they pay here can be offset against tax payable in Canada. The same applies for certain Hongkongers working in Canada.
The pact was sealed yesterday during Canadian Prime Minister Stephen Harper's visit to the city, his second since he took office in 2006. It was Hong Kong's 26th such deal and it also has implications for some corporate taxes. The city has previously signed treaties with countries such as Britain, mainland China, Japan and France, and is negotiating with others.
Professor Chan Ka-keung, Secretary for Financial Services and the Treasury, signed the pact with Canada's trade minister, Edward Fast.
Harper, who witnessed the signing ceremony with Chief Executive Leung Chun-ying, said: "This will increase trade and investment flows while reducing incidents of double taxation and tax evasion."
There are more than 16,500 Canadians in the city - the eighth-largest expat community - while 500,000 people of Hong Kong descent call Canada home.
Chan said the agreement would strengthen economic and trade ties. He expected it to provide an added incentive for firms in Canada to invest in Hong Kong, and vice versa.
The pact will come into force after both sides complete ratification procedures. The Chief Executive-in-Council will make an order under the Inland Revenue Ordinance to put it into law, unless the Legislative Council opposes the order.
Canada's withholding tax on Hongkongers' investment interests will be capped at 10 per cent, down from 25 per cent. Hong Kong-based airlines that fly to Canada will be taxed at the city's corporate rate of 16.5 per cent and will not be taxed in Canada.
Patrick Wong Lung-tak, managing practising director of accountancy firm Wong Lam Leung & Kwok, said the move would benefit the aviation industry as carriers could save money and would no longer have to work out how much profit was generated from flights to and from Canada.
A spokesperson for Cathay Pacific said such pacts had "a positive impact on the business environment".