Japan Tax Treaties with Other Countries

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
Other countries on your request

Email: tyo4ww@evershinecpa.com
Contact: Andrea Kyu, speak both Japanese and Mandarin
Onarimon Yusen Building 7F, Nishi-Shinbashi 3-23-5,Minato-ku, Tokyo 105-0003, Japan

We set up below judgment criteria on Treaty application:

Scenario:

If you are not a Japan legal resident, and if your resident country has DTA with Japan, and if you are without PE (Permanent Establishment), please go to Section A.

If you are not a Japan legal resident, and if your resident country has DTA with Japan, and if you are with PE (Permanent Establishment) please go to Section B.

If you are not a Japan legal resident, and if your resident country has no DTA with Japan, please go to Section C.

Section A:
Scenario:

If you are not a Japanese legal resident, and if your resident country has DTA with Japan, and if you are without PE (Permanent Establishment), it will be redeemed as “non-Japan Domestic Sourced Income”.
That means Japan will levy zero-tax.
However, you still need to send the zero-tax application to Japan Tax Bureau for being approval.
Below, we will let you understand through Q&A

DTA-Q-10:
日本的哪些外國法律居民公司可以依DTA申請沒有常設機構(PE)下零稅率?
In Japan, which foreign legal resident company can apply for a zero tax rate without PE under DTA?

DTA-A-10:
Japan has signed DTAs with over 80 countries:

DTA-Q-20:
為什麼在DTA下該國外資沒有常設機構 (PE)之外資所得，可以享受零稅率?
Why does the Country’s foreign capital without a permanent establishment (PE) in Japan, under the DTA enjoy zero tax rate?

DTA-A-20:
It follows Article 5 and Articles 7 in the DTA Treaty. The article defines if a foreign entity having PE in Japan. Article 7 regulates if no PE, non-Japan domestic sourced income will not be levied tax in Japan.

DTA-A-Q30:
哪些情況被視為沒有PE，外資在該國設立子公司會被視為外資的在該國的子公司嗎?
Under what circumstances are deemed to have no PE, and will the establishment of a foreign-funded subsidiary in Japan be regarded as a foreign-funded subsidiary in Japan?

DTA-A-30:
According to DTA Article 5 item 7, A Wholly Foreign Owned subsidiary in Japan will not be treated as PE because it is a separate legal entity.
That means if a Japan Subsidiary pays service fee to a non-Japan Parent Company through a service contract signed between a subsidiary and non -Japan Parent company as an investor, a 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.
Please see the Japan Transfer Pricing web-page

DTA-Q-40:
外資在日本設立分公司或辦事處，可否適用沒有PE下的零稅率?
If a foreign company establishes a branch or office in Japan, can the zero-tax rate without PE be applied?

DTA-A-40:
According to DTA Article 5 item 2, If a foreign company sets up a branch or Office in Japan, then will be considered as Japan’s domestic Income.
But According to DTA Article 5 item 4, if an Office is only doing a preparatory or auxiliary activity, will apply a zero-tax rate.

DTA-Q-50:
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 a zero tax rate under DTAA without PE?

DTA-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.
*A No PE declaration letter

Section B:

Scenario:
If you are not a Japanese legal resident, and if your resident country has DTA with Japan, and if you are with PE (Permanent Establishment), 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.

Below, we will let you understand through Q&A

DTA-Q-60:
被視為日本來源所得的判定要素?
What are the factors that are deemed to be the country’s domestic source income?

DTA-A-60:
Article 161 states that Domestic source income to include the following:

• Income from a business conducted in Japan.
• Profits from a business conducted in Japan under a partnership contract.
• Consideration for the transfer of land or building which are in Japan.
• Provision of personal services in Japan.
• Leasing of real property located in Japan.
• Interest income bonds issued by a domestic corporation.
• Dividend income received from a domestic corporation.
• Interest on a loan is provided for a person who performs operations in Japan.
• Royalties are received from a person who performs operations in Japan.

DTA-Q-70:
DTA第五條及第七條優先於日本來源所得的判定要素?
Do Article 5 and Article 7 in the DTA take precedence over the Japan determination factors on Japan domestic sourced income?

DTA-A-70:
When DTA is applied, in the event of a different PE definition between Japan domestic tax laws and Article 5 in the DTA, the definition under the DTA shall prevail over the domestic regulations.
When DTA is applied, if a foreign company is defined as without PE (Permanent Establishment) in Japan, they will be considered non-Japan domestic sourced income, in the event business profit is relevant to this issue, the clause in Article 7 in the DTA zero-rate tax can be applied accordingly.
In this scenario, please see section A.

DTA-Q-80:
當非日本稅務居民有日本來源所得，不考慮DTA 情況下，日本稅法扣繳稅率多少?
When non-tax residents of Japan having Japan domestic sourced income, what is the withholding tax rate according to Japan tax regulations excluding DTA?

DTA-A-80:
These are general rates and applicable to concerning countries with whom Japan does not have a Double Taxation Agreement (DTA).
Business Profits – 20%
Dividend – 20.42% (Include surtax)
Interest (loan) – 20.42% (Include surtax)
Royalties fee – 20.42% (Include surtax)
Technical services – 20.42% (Include surtax)
Professional services (Individual) – 20.42% (Include surtax)
*Surtax (Special reconstruction income tax) is at 2.1%.
*The rates and rules of DTA vary from country to country depending on the particularly signed between both parties’ country of residence.

DTA-Q-90:
If DTA Tax Rate is higher than Japan tax rate, apply which tax rate?

DTA-A-90
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.

DTA-Q-A0:
當非日本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 non-tax residents of Japan having Japan domestic sourced income, what is Japan’s application procedure based on the DTA preferential tax rate?

DTA-A-A0:
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.

Section C:

DTA-Q-B0:
As an investor, if your country has not signed DTA with Japan, what kinds of tax rates when you have Japan relevant income?

DTA-A-B0:
If you are not a Japan legal resident, and if your resident country has no DTA with Japan,
Whatever you are with PE or without PE, all kinds of income will be levied according to Japan’s domestic sourced income.
Besides, it will be levied by Japan Tax Rates.

These are general rates and applicable to concerning countries with whom Japan does not have a Double Taxation Agreement (DTA).

Business Profits – 20%

Dividend – 20.42% (Include surtax)

Interest (loan) – 20.42% (Include surtax)

Royalties fee – 20.42% (Include surtax)

Technical services – 20.42% (Include surtax)

Professional services (Individual) – 20.42% (Include surtax)

*Surtax (Special reconstruction income tax) is at 2.1%.

*The rates and rules of DTA vary from country to country depending on the particularly signed between both parties’ country of residence.

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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E-mail: tyo4ww@evershinecpa.com
Contact: Andrea Kyu, speak both Japanese and Mandarin
Onarimon Yusen Building 7F, Nishi-Shinbashi 3-23-5,Minato-ku, Tokyo 105-0003, Japan

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