The table linked to this article summarizes the withholding tax rates on royalties under Japan’s different tax treaties.
The withholding tax rate under Japan’s model tax treaty is 10 per cent. More recent tax treaties have seen the rate reduced to zero, although along with limitation of benefits clauses and similar more modern articles such as the recognition of pass through status.
A few points come out of comparison between the terms of treaties of different countries:
The India Japan treaty is the only one to include the provision of technical services within the definition of royalties and apply a withholding tax rate of 10%. For many other countries such income would be treated as business income taxable only in the country of residence in the absence of a permanent establishment in the other treaty country. The non treaty protected position would likely be the imposition of a 20 per cent withholding tax and an obligation to file a tax return as explained here. This is is probably to India’s disadvantage given the success of its business services industries.
A number of treaties include gains on the transfer of patent rights in royalties although many do not. This could be a potentially important planning point.
Treaties with the former communist bloc countries tend to impose lower rates of royalties paid on underlying cultural rights, a rare welcome legacy from that era.
Click on the table to the left or the link in the introduction above to access the table.