Financial Secretary Paul Chan has signed a comprehensive agreement with India on the avoidance of double taxation, the 39th deal Hong Kong has signed with its trading partners.

He signed the pact today with Indian Ambassador to China Gautam Bambawale.

India is Hong Kong's seventh largest trading partner with bilateral trade reaching $266 billion last year.

Thirteen of Hong Kong's top 20 major trading partners are also tax agreement signatories, accounting for 73% of Hong Kong's world trade.

Mr Chan said: "Hong Kong has all along treasured its economic and trade connections with India, and I have every confidence that the signing of the (agreement) will bring trade relations between the two places to a new level."

The agreement sets out the allocation of taxing rights between the jurisdictions of Hong Kong and India, and will help investors better assess their potential tax liabilities from cross-border economic activities.

It also provides tax relief arrangements including halving the cap on India's withholding tax rate for Hong Kong residents on interest to 10%, and taxing Hong Kong airlines operating flights to India at Hong Kong's corporation tax rate.

Profits from international shipping transport earned by Hong Kong residents arising in India and subject to tax there will enjoy a 50% reduction in Indian tax.

The tax pact has also incorporated an article on exchange of information, which enables Hong Kong to fulfil its international obligations on enhancing tax transparency and combating tax evasion.

The pact will be implemented by way of an order to be made by the Chief Executive in Council under the Inland Revenue Ordinance, subject to negative vetting by the Legislative Council.

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