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Akio Takisaki |
The new tax treaty between Japan and the UK entered into force on October 12. In Japan, the new treaty will be applicable to the following taxes:
With respect to withholding taxes, to amounts to be taxed on or after January 1 2007
With respect to taxes other than the above, to income arising in taxable years commencing on and after January 1 2007.
The key points relating to the new treaty can be summarized as below.
Withholding tax
Withholding tax rates on investment income have been substantially reduced.
Table 1: Withholding tax |
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New Treaty |
Current Treaty |
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Dividends |
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• when a beneficiary corporate shareholder holds the voting rights in the company paying dividends at 50% or more for at least 6 months |
0% |
10% |
• when a beneficiary corporate shareholder holds the voting rights in the company paying dividends at 10% or more for at least 6 months |
5% |
10% or 15% |
• when a pension fund or pension scheme is the beneficiary |
0% |
- |
• Other dividends |
10% |
15% |
Interests |
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• when a government, pension fund, financial institution, etc., is the beneficiary |
0% |
10% |
• Other interests |
10% |
10% |
Royalties |
0% |
10% |
Capital gain on share transfers
Under the new tax treaty, as a rule, if a resident of one contracting state transfers shares in a corporation in the other contracting states and receives a gain, the gain is not taxable in the other contracting state.
However, if at least 50% of the asset value in the share issuing corporation is immovable property located in the other contracting state, the other contracting state may impose tax. Also, if a resident of one contracting state holds at least 25% of shares in a corporation in the other contracting state and the resident transfers at least 5% of all issued shares during a fiscal year, the other contracting sate may impose tax.
Limitation on benefits
A resident of one of the contracting states who intends to enjoy the benefits of the new treaty must fall into the category of a qualified person under the treaty, by satisfying the conditions specified in the provisions.
Akio Takisaki (akio.takisaki@jp.ey.com), Tokyo
