Main points
- Tax treaties will modify the scope of exposure to Japanese taxes for a foreign company
- Many tax exemptions may apply to a foreign company
- In order to benefit from tax exemptions, the company has to notify the relevant Japanese tax office
Most of the European Union member states have signed a bilateral tax convention with Japan in order to avoid double taxation, to prevent tax evasion and tax avoidance and to promote investment and economic exchanges. The Ministry of Finance frequently reports on the status of negotiations on tax conventions.
Source: Ministry of Finance, Japan’s Tax Convention Network
Generally speaking, international tax agreements include the following definitions and rules, without being exhaustive:
- Definition of a resident, the non-discrimination rule, the source of income rule
- Definition of a permanent establishment (PE), taxation of business income, income from international transportation
- Definition and taxation rule for dividend, interest, royalty, real estate income and capital gain
- Definition of independent professional income, employment income and tax-exemption on short stay for professors, students, government officers and diplomats
- Mutual consultation by competent tax authorities, smooth exchange of information
A tax treaty can substantially modify a company’s exposure to Japanese taxation. Many criteria can be changed by a tax treaty, especially in case of qualification of a permanent establishment. For a European SME wishing to do business in Japan, it is therefore important to verify the content of the treaty.
If there is no tax treaty between the SME member state and Japan, the Japanese tax law will enter into in force and all the situations defined of an agent PE will create a taxable presence in Japan.
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Tax convention with Japan |
No Tax convention with Japan |
|
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The table below shows the exposure to Japanese taxes for each member state according to each bilateral treaty. If the agent is treated as a PE, it means that the company is taxable in Japan.
Tax treaties may also organise many exemptions for foreign companies operating in Japan. It is important to check possible tax reliefs when doing business in Japan at the tax offices or with a tax accountant. In order to receive tax relief measures, it is required to submit notification concerning the tax treaties to the relevant tax office.
Japan's Ministry of Finance provides a list of countries with whom it has conclude tax treaties.
Modifications made by tax treaties to the “permanent establishment” definition
|
Country (link to legal text) |
Bilateral tax treaty (date, article) |
Contract concluding agent (i.e. authorized representative) |
Order-fulfilling agent (i.e. storage and delivery) |
Order-securing agent |
Building site or construction or installation project |
|
Yes (2017, 4) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (2016, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (1993, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 6 months |
|||||
|
Yes (2018,5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Cyprus |
No |
Treated as PE |
Treated as PE |
Treated as PE |
Treated as PE |
|
over 12 months |
|||||
|
Yes (1978, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (2017, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (2018,5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (1972, 5) |
Treated as PE |
Not taxable in |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (1995, 5) |
Treated as PE |
Not taxable in |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (1966, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
No |
Treated as PE |
Treated as PE |
Treated as PE |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (1980, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (1974, 6) |
Treated as PE |
Treated as PE |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (1969, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (2017, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (2017, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (1992, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Malta |
No |
Treated as PE |
Treated as PE |
Treated as PE |
Treated as PE |
|
over 12 months |
|||||
|
Yes (2011, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (1980, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (2011, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (1976, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (1978, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (2016,5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (2018, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
|||||
|
Yes (1983, 5) |
Treated as PE |
Not taxable |
Not taxable |
Treated as PE |
|
|
over 12 months |
