🇺🇸 United States — 🇯🇵 Japan

Tax Treaty / Double Tax Avoidance Agreement detail

The US-Japan Income Tax Convention was signed on 6 November 2003 and entered into force on 30 March 2004, replacing the 1971 treaty. A protocol amending the treaty was signed in 2013 and entered into force in 2019, further reducing rates and strengthening information exchange. Under the amended treaty, dividends paid to qualifying pension funds are fully exempt. A 5% rate applies to companies owning at least 50% of voting shares for a six-month period. A 10% rate applies to direct investments of at least 10% ownership, and the general portfolio rate is also 10%. Interest is generally exempt from withholding under the 2013 protocol for arm's-length payments, with limited exceptions for certain contingent interest. Royalties are fully exempt from withholding, a significant benefit for US technology and pharmaceutical companies licensing into Japan. The treaty contains a comprehensive Limitation on Benefits article that has been updated by the 2013 protocol to conform with modern US treaty policy. Qualified persons must satisfy ownership and base-erosion tests, or meet derivative benefits, active trade or business, or publicly traded company criteria. Japan's consumption tax and inheritance tax are not covered by the income tax convention. The saving clause applies to US citizens and residents. Japan taxes its residents on worldwide income with foreign tax credit relief. Capital gains from the sale of shares in Japanese companies with significant real property holdings are addressed specifically to prevent indirect avoidance of property gain taxation. A Totalization Agreement between the US and Japan prevents dual social security contributions and co-ordinates retirement and disability benefit eligibility for cross-border workers.