Japan Tax Treaties with China

Japan has signed Double Taxation Agreements (DTA) with over 80 countries.

To claim the benefits of the tax treaty between countries with Japan, you need to submit Application Form for Income Tax Convention (Form 1) with relevant attachments to the tax authorities in Japan before the date of payment. Otherwise, if you fail to submit the forms in time, you can still claim the benefits of the tax treaty by submitting the Application Form for Refund of the Overpaid Withholding Tax (Form 11).

Japan Tax Treaties with China <click me
Japan Tax Treaties with Taiwan <click me
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Contact: Andrea Kyu, speak both Japanese and Mandarin
Onarimon Yusen Building 7F, Nishi-Shinbashi 3-23-5,Minato-ku, Tokyo 105-0003, Japan

CN-Q-10:

中國母公司在日本是否可以依DTA申請沒有常設機構(PE)下零稅率?

China Parent Company, can apply for zero tax rate without PE under DTA in Japan?

CN-A-10:

Yes.
China has DTA with Japan, and if China Legal Resident company is without PE (Permanent Establishment), it will be redeemed as “non-Japan Domestic Sourced Income”.
That means Japan will levy zero-tax.
However, China Legal Resident company still needs to send zero-tax application to Japan Tax Bureau for being approved.

That means if a Japan Subsidiary pays service fee to a non-Japan Parent Company through a service contract signed between subsidiary and non -Japan Parent company
as an investor, non-Japan Parent Company can apply zero tax.

As for if the paid amount is reasonable, it will get involved TP (Transfer Pricing) judgment by Japan Tax Bureau.

CN-Q-20:

中國母公司在日本設立了日本子公司， 中國母公司替子公司服務收入能否申請零稅率?

When China Parent Company as an Investor, setup a Japan subsidiary, and provide services from China to Japan Subsidiary, can apply for zero tax rate without PE under DTA in Japan?

CN-A-20:

According to DTA Article 5 item 7, A Japan subsidiary will not be treated as PE of China Parent company as an investor because it is a separate legal entity.

That means if a Japan Subsidiary pay service fee to China Parent Company through service contract signed between subsidiary and China Parent company
as an investor, China Parent Company can apply zero tax.

As for if the paid amount is reasonable, it will get involved TP (Transfer Pricing) judgment by Japan Tax Bureau.

CN-Q-30:  

日本依DTA沒有PE下零稅率申請的程序為何?
 What is the procedure for Japan to apply for zero tax rate under DTA without PE?

CN-A-30:

Refer to the below website for procedures to apply for withholding tax reduction or exemption:

https://www.nta.go.jp/taxes/tetsuzuki/shinsei/annai/joyaku/mokuji2.htm

Generally, the procedures would be as follow:

Submit the relevant dossier to National Tax Agency, the day before the date when first receive the income for the following documents:

*Notice of eligibility for tax exemption/ reduction (Form 1-10).

*Form 17 Appendix on Benefits Clause, attach with the tax treaty notification.

*Power of attorney (if the notice is submitted by an agent other than the tax administrator.

*A No PE declaration letter.

CN-Q-40:  

中國母公司有日本來源所得的各項所得扣繳稅率為何?
When China Resident company having Japan domestic sourced income, what are the withholding tax rates for various incomes in Japan?

CN-A-40:

China has DTA with Japan, and if you are with PE (Permanent Establishment) in Japan, your income will be considered as Japan domestic sourced income.
As for levying Tax Rate, please be aware:
if Japan Tax rate > DTA Rate, adopt DTA Rate; if Japan Tax rate < DTA Rate, adopt Japan Rate.

If DTA applied, the DTA rates between China and Japan are as below:

*Business profits (without PE) will be considered as non-Japan sourced income with zero tax, please refer Section A.

*The withholding tax rate under domestic law may apply rather than the treaty rate where the domestic law rate is lower than the treaty rate.

*No tax is imposed on dividends paid to nonresident corporations under Japanese domestic law.

CN-Q-50

當中國稅務居民有日本來源所得，依DTA優惠稅率申請的程序為何?

When China Tax Resident having Japan domestic sourced income, what is Japan’s application procedure based on the DTA preferential tax rate?

CN-A-50:

Refer to the below website for procedures to apply for withholding tax reduction or exemption:

https://www.nta.go.jp/taxes/tetsuzuki/shinsei/annai/joyaku/mokuji2.htm

Generally, the procedures would be as follow:

Submit the relevant dossier to National Tax Agency, the day before the date when first receive the income for the following documents:

*Notice of eligibility for tax exemption/ reduction (Form 1-10).

*Form 17 Appendix on Benefits Clause, attach with the tax treaty notification.

*Power of attorney (if the notice is submitted by an agent other than the tax administrator.

Summary of TAX TREATY between Japan and CHINA

The Government of the People’s Republic of China and the Government of Japan concluded and signed an Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (Double Taxation Agreements, DTA), on 06 September 1983 and takes effects from 01 January 1985.

Permanent Establishment

Article 5 states the term permanent establishment (PE) means a fixed place of business which generally includes the followings:

*A place of management

*A branch

*An office

*A factory

*A workshop

*The furnishing of consultancy services through employees or other personnel (other than agents of an independent status) for periods aggregating more than 6 months.

Withholding Tax

*Article 7 of DTA between Japan and China explained, an enterprise shall not be taxed on business profits unless it is attributable to the permanent establishment situated in the relevant territory.

*In the Article 10, dividends paid by a Japan Resident enterprise to China Resident enterprise (and vice versa), the tax so charged shall not exceeding 10% of the gross dividends.

*Article 11 states that where the beneficial owner of the interest (exclude exempted interest) is a non-resident, shall be taxed in the territory in which it arises at the rate not exceeding 10% of the gross interest.

*Article 12 explained royalties means payment for the use of, right to use, copyright of literary, artistic, or scientific work or equipment, information concerning industrial, commercial, or scientific experience.

*Technical services are covered by in Article 7. Technical services rendered by individuals are covered by Article 14.

* Professional services or other activities provided by an individual of an independent character were explained in Article 14. Japan may not tax payments for professional service rendered by a China resident unless the China resident has a fixed place or stay in Japan for 183 days or more. An independent profession includes physicians, lawyers, engineers, architects, dentists, and accountants.

Elimination of Double Taxation

Article 23 of the DTA states that double taxation shall be eliminated by allowing tax credit to be made available to the home resident territory. It shall be credited against the tax levied in the first-mentioned territory on that resident. However, the amount of credit shall not exceed the amount of the tax in the first-mentioned territory.

Exchange of Information

Article 26 states that the competent authorities of the territories shall exchange such information (including documents or certified copies of the documents) relevant to the provision of this Agreement.

Please be aware below Warning:
The above contents are digested by Evershine R&D and Education Center in October 2021.
Regulations might be changed as time goes forward and different scenarios will adopt different options.
Before choosing options, please contact us or consult with your trusted professionals in this area.

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