A protocol to the US-Japan Tax Treaty, which implements various long-awaited changes, entered into force on August 30, 2019, upon the exchange of instruments of ratification between the Government of Japan and the Government of the USA. The protocol was originally signed by Japan and the US on January 24, 2013.

While Japan ratified the protocol in the Diet on June 17, 2013, ratification on the US side had been held up in the Senate, which finally ratified it on July 17, 2019. The President signed it into law on August 6, 2019.

Notable changes in the protocol are enlarged exemptions of taxes required to be withheld on payments of interest and dividends. These changes are effective for payments made on or after November 1, 2019.

Existing Treaty Protocol
  • 10% in general
  • Exempt in general
  • Bank, etc.: Exempt
Dividend Requirement for Exemption: Requirement for Exemption:
  • Holding more than 50% ownership
  • Holding at least 50% ownership
  • Holding period of 12 months or more
  • Holding period of 6 months or more

US taxpayers should note that the above interest or dividend payments to Japanese owners, though potentially no longer subject to the US withholding, may still be subject to US reporting, such as on Form 1042 and Form 5472. Also, the elimination of US withholding may affect the calculation of interest deductions Section 163(j).

Please contact your GBQ tax advisor for further assistance related to the above, and other changes, in the protocol.
To learn more about US-Japan Tax Treaty changes, we invite you to attend our upcoming seminar being held on Tuesday, November 12, 2019. For event details and registration information, please click here. Please note, this seminar will be delivered in Japanese only. 

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