India And Japan Agree To Withholding Tax Cut

by Mary Swire, Tax-News.com, Hong Kong

01 November 2005

India and Japan reached an agreement yesterday on revisions to the bilateral tax treaty that exists between the two countries which will see a cut in withholding tax on technical services fees, dividends and interest income.

Japanese Finance Minister Sadakazu Tanigaki announced on Monday that both governments have agreed to cut tax on fees for technical services, such as cross-border technical transfers, technical assistance and software development to 10% from 20%.

While Tanigaki stated that the new agreement will help promote bilateral trade between India and Japan, companies in the software sector will be disappointed that the withholding tax has not been entirely abolished, a move for which the software industries in both countries had been lobbying.

It is believed that Japanese negotiators had also pushed for the withholding tax to be reduced to zero percent, but have been compelled to settle for a compromise of 10%.

Meanwhile, both sides have agreed to reduce withholding tax on dividend and interest income earned from cross-border investment, also to 10%. At present, the withholding tax rate on dividend income stands at 15%, while the tax rate for interest income is 10% for banks and 15% for other companies.

The revised treaty will be signed once certain legal formalities have been completed in both countries.

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