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Belgium and Japan sign new tax treaty

Belgium and Japan have signed a new tax treaty which is to replace the current treaty of 1968, that was amended in 1988 and 2010.

According to the new treaty, dividends will be subject to a maximum withholding tax (WHT) of 10% (currently 15%). An exemption is included for dividends paid to (i) companies holding a participation of at least 10% for at least 6 months (currently 10% if participation of at least 25% for the same period), or (ii) a pension fund. As is the case now, interest will also be subject to a maximum WHT of 10%. However, the new treaty introduces an exemption for (i) intercompany interest, and (ii) interest paid to a pension fund. Royalties will no longer be subject to a maximum WHT of 10%, but will be exempt.

For income from employment, the 183-days rule should be evaluated based on any 12-month period starting or ending in the taxable period instead of on a calendar year basis. Belgium will apply its standard rules for avoiding double taxation.

Both countries must now ratify the treaty before it will apply. For Belgium, this means all parliaments must give their formal approval first. This process will most likely take several years.