Investing in Japan
Investment News
Feb. 29, 2008
Conclusion/Entry into Force of Tax Treaties
Japan has concluded tax treaties with many countries for the purposes of avoiding double taxation of income internationally and preventing tax evasion.
The provisions of tax treaties supersede those of domestic law. In determining the tax liability in Japan of individuals and corporations domiciled in a country with which Japan has a tax treaty, the location of the source of income deemed taxable income under Japanese law may at times be amended to accord with these tax treaties. Provisions have also been established in Japan for reducing the tax on, or exempting from tax, various types of income sourced in Japan.
Treaties recently concluded or entering into force as of February 2008 are outlined below.
| Entry into force | |
|---|---|
| France Dec 2007 (Protocol of amendment) |
<Outline of treaty> The protocol of amendment partially revises the content of the existing treaty. Reflecting the close economic relationship between France and Japan and in order to promote investment exchanges between the two countries, in line with the provisions of the Japan-US Tax Treaty, the Japan-UK Tax Treaty, and others, the Japan-France Tax Treaty has been amended to reduce tax on income from investments (dividends, interest, and royalty (copyright, patent rights, etc.)) in the source country, and to exempt royalty and interest received by specified entities (financial institutions, etc.) from taxation in the source country. In addition to this expansion of measures for tax reduction and exemption, measures have been adopted to prevent tax evasion. In relation to the Japan-France Social Security Agreement, both countries have introduced measures to allow social insurance premiums, which are paid into the social security system of the other country, to be deducted from taxable income in the country in which an individual is employed. |
| Conclusion | |
| Australia Jan 2008 (New treaty to replace existing treaty) |
<Outline of treaty> The new treaty comprehensively revises the provisions of the existing treaty. In order to promote active investment exchanges between Japan and Australia, the new treaty provides for the reduction of tax on income from investments (dividends, interest, and royalty (copyright, patent rights, etc.)) in the source country, and the exemption of dividends exchanged between specified parent companies and subsidiaries and interest received by financial institutions from taxation in the source country. The new treaty clarifies and rationalizes the tax relationship between the two countries by including provisions regarding income from real estate and capital gain, which were not included in the existing treaty, and restricting the correction period of transfer pricing taxes, among other measures. Measures have also been adopted to prevent the tax evasion that might accompany this expansion of measures for tax deduction and exemption, in order to adequately guarantee the tax rights of the two countries. |
| Pakistan Jan 2008 (New treaty to replace existing treaty) |
<Outline of treaty> The new Japan-Pakistan tax treaty comprehensively revises the provisions of the existing treaty based on the provisions of recent international tax treaty models and Japan's tax treaties with other countries, and clarifies the tax relationship between Japan and Pakistan. |
Source: This is a translation of selected information from the "Tax Treaty Amendments, etc." page of the MOF website.
