Interest withholding tax rates under Japan’s treaties

March 22, 2010  |  Tax Treaties, Withholding tax

Shrine in spring in Kyoto

The table linked to in this post is a summary of terms of the Interest Article in Japan’s different tax treaties.

There are a couple of important points to note in relation to applying the interest article when looking at Japan’s tax treaties. Accordingly it is important not to rely only on this summary but to consult the relevant treaty and tax appropriate professional advice.

Some points worthy of note are as follows:

  • The rate of tax on interest in the tax treaty is the maximum rate that can be imposed. This is normally 20% in Japan’s case and many treaties reduce this rate to 10% but there are a number of important exemptions from withholding tax on interest under Japanese domestic law. These are not summarised in this post but briefly some of the important ones are (1) withholding tax on JGBs held in an appropriate clearing system; and (2) an exemption for bonds issued by Japanese companies under some circumstances (such bonds would generally have to be registered in Euroclear or similar for the exemption to apply).

  • Sourcing is also an important issue when looking at tax treaties. For Japanese domestic tax purposes some “interest like” items (such as discount/premium) are not classified as interest and may be subject to slightly different local withholding tax treatment such as up-front withholding. Where discount or premium is included in the definition of interest under the terms of a treaty then the treaty terms relating to interest will apply instead of domestic law.  This is referred to in the table.

  • Under some of Japan’s tax treaties where interest is attributable to a branch in a treaty country then the terms of the treaty with the country of the branch may still be applied because the interest is held to have its source in that country. For example a Cayman Island company with a branch in Japan paying interest to the UK could still apply the UK/Japan treaty to reduce the rate of interest withholding on interest payable attributable to such a Japan branch as under Article 11(7) of the Japan/UK treaty the interest is treated as having a Japan source. This is a somewhat unusual term in tax treaties.

The excel table in the above link is reproduced below. Please check the treaty pages to see if there have been any developments in tax treaty negotiation since this post.

Interest under Japan’s tax treaties
Ref Country Limit on tax rate Comments Article
  OECD Model Treaty 10% and below Includes discount, premium in interest 11
  Japan model treaty 10% and below BOJ, Japan Export Bank – interest is exempt
1 Ireland 10% Includes discount, premium in interest 12
2 Argentina 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 8
3 USA 10% As Japan model treaty, exemption for indirect finance, exemption for financial insitutions, exemption for installment payments, exemption for pension funds, includes discount, premium in interest 11
4 Armenia 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 8
5 United Kingdom 10% As Japan model treaty, exemption for indirect finance, exemption for financial insitutions, exemption for installment payments, exemption for pension funds, includes discount, premium in interest 11
6 Israel 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11
7 Italy 10% Includes discount, premium in interest 11
8 India 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11
9 Indonesia 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11
10 Ukraine 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 8
11 Uzbekistan 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 8
12 Egypt 9
13 Australia 10% 8
14 Austria 10% 10
15 Netherlands 10% As Japan model treaty 12
16 Canada 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11
17 Korea 10% As Japan model treaty, discount or premium included in interest 11
18 Kirgiz 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 8
19 Georgia 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 8
20 Zambia 10% As Japan model treaty, discount or premium included in interest 10
21 Singapore 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11 – protocol 1
22 Switzerland 10% As Japanese model treaty, exception for indirect finance 11
23 Sweden 10% Includes discount, premium in interest 11
24 Spain 10% 11
25 Sri Lanka Exemption for banks 7
26 Slovakia 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11
27 Thailand Individuals – as under domestic law; financial institutions 10%; other companies 25% As Japan model treaty, discount or premium included in interest 11
28 Tajikistan 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 8
29 Czech Republic 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11
30 People’s Republic of China 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11
31 Denmark 10% Includes discount, premium in interest 11
32 Germany 10% As Japan model treaty 11
33 Turkmenistan 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 8
34 Turkey General 15%; banks 10% As Japanese model treaty, exception interest received by government, includes discount or premium 11
35 New Zealand
36 Norway 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11
37 Pakistan 30% Exemption for government bonds, industrial bonds and loans 7A
38 Hungary 10% As Japanese model treaty, exception for indirect finance, exception for installment purchases, includes discount or premium 11
39 Bangladesh 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11
40 Fiji
41 Philippines General 15%; public, corporate bonds 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11
42 Finland 10% 11
43 Brazil 12.50% As Japan model treaty 10
44 France 10% As Japan model treaty, exemption for indirect finance, exemption for financial insitutions, exemption for installment payments, includes discount, premium in interest 17
45 Bulgaria 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11
46 Vietnam 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11
47 Belorussia 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 8
48 Belgium 10% 11
49 Poland 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11
50 Malaysia 10% As Japanese model treaty, includes discount or premium 11
51 South Africa 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11
52 Mexico General 15%; banks 10% As Japanese model treaty, includes discount or premium 11
53 Moldavia 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 8
54 Luxembourg 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11
55 Romania 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 11
56 Russia 10% As Japanese model treaty, exception for indirect finance, includes discount or premium 8


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