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Japan - US Double Tax Treaty

Updated on Thursday 30th November 2017

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japan-us-double-tax-treaty.jpgThe Japan-US double tax treaty was signed in 2003, replacing the previous one which dated from 1971. The double tax treaty was put in place in order to avoid double taxation and prevent the fiscal evasion in connection with the income taxes and the capital gains. Our company formation advisors in Japan can provide more details on this agreement, as well as assistance in setting up a company in Japan.
 
One year later, in 2004, the Japan and the USA agreed to a new Convention for the Avoidance of Double Taxation and it related to withholding taxes.
 
A new protocol to this tax treaty was also added in 2013, being the first time that the country enables a general withholding tax exemption for interest paid to a US individual who is entitled to benefit from the agreement.
 

Taxation on dividends according to the Japan-US double tax treaty

 
According to the Japan-US double tax treaty, withholding taxes on dividends are reduced for residents of Japan and the US in some cases.
 
A withholding tax is not applicable if the dividends are paid to a corporate shareholder who is a resident in the other jurisdiction and owns in excess of 50% of the voting stock of the company which is paying the dividend for a year. This is applicable if certain conditions are met. Our Japan company formation consultants can provide further details on what these conditions consist of.
 
A withholding tax is also not levied if the dividends are paid to a pension fund shareholder who is a resident of the other jurisdiction. 
 
This is applicable if the dividends are not paid from the carrying on the pension fund or a related business, in a direct or indirect manner.
 

Interest according to the Japan-US double tax agreement

 
The Japan-US double tax agreement stipulates that a 10% withholding tax is applied on interest which is paid to an individual who is a resident of the other jurisdiction and if certain criteria are met. Our company registration agents in Japan can offer more information on what these criteria consist of.
 
A withholding tax exemption, though, can be applied if, for example, the interest is beneficially owned by a certain governmental organization, a financial institution or a pension fund.
 
If you need to know more about the Japan and US income tax treaty, or for assistance related to setting up a company in Japan, please speak to our friendly staff.

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