UK-Japan DTA Enters Into Force

by Jason Gorringe, Tax-News.com, London

13 October 2006

The new Double Taxation Convention between the United Kingdom and Japan, which was signed in London on 2 February 2006, entered into force on Thursday, thirty days after an exchange of diplomatic notes.

The text has been published as the Schedule to the Double Taxation Relief (Taxes on Income) (Japan) Order 2006 (Statutory Instrument 2006 No. 1924).

The draft Order was approved by Parliament on 17 May 2006.

In the United Kingdom, the provisions of the Convention will take effect from 1 January 2007 (for taxes withheld at source), 1 April 2007 (for corporation tax purposes), and from 6 April 2007 (for income tax and capital gains tax purposes).

In Japan, the provisions will take effect from 1 January 2007.

Important features of the new treaty include complete elimination of source-country withholding taxes on: all royalty income; certain interest income, including interest income earned by financial institutions; and dividend income paid to parent companies with a controlling interest in the paying company.

Speaking following the signing of the new agreement in February, UK Paymaster General, Dawn Primarolo announced that:

"As two of the world's largest economies, the relationship between Japan and the United Kingdom is one of great importance. This new treaty represents a significant step forward in that relationship."

"Since the current UK/Japan double taxation convention was signed, nearly 40 years ago, the economic relationship between the UK and Japan has developed greatly. By continuing to dismantle tax-related barriers to cross-border economic activity, the new treaty strengthens the framework within which UK and Japanese businesses can trade and invest, promoting open markets, enterprise and business flexibility."

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