As of July 1, 2023, Japan has concluded income tax treaties with 79 countries/regions to avoid double taxation and prevent tax evasion. Tax treaties concluded by Japan generally accord with the principles of the OECD Model Tax Treaty.
The provisions of tax treaties supersede those of domestic law. In determining the Japanese tax liability of individuals and corporations domiciled in other country with a Japan tax treaty agreement, the location of the source of income deemed taxable income under Japanese tax law may be amended in accordance with the tax treaties.
Japanese withholding tax is ordinarily imposed on dividend, interest, and royalty payments to foreign companies and non-resident individuals. The withholding rate is currently 20.42%. This withholding rate may be lessen or reduced upon application of tax treaty and depending on the provision in the concluded tax treaty with the other country/region of the foreign company or individual. It is to be pointed out that most treaties have reduced tax rate to foreign investors that have no Permanent Establishment (PE) in Japan. Also tax treaties provide relief from double taxation through tax credits.
To avail of the tax treaty benefit, an application form for relief from Japanese income tax should be filed and submitted to the tax office by the payer of the income before the date of payment.
As of July 1, 2023, Japan has concluded the Convention on mutual Administrative Assistance in Tax Matters with 140 countries/regions and the tax information exchange agreements with 11 countries/regions.