Wednesday, 14 December 2016

Belgium signs new tax treaty with Japan

On 12 October 2016, the governments of Belgium and Japan signed a new tax treaty to replace the existing treaty dating from 1970 (as amended by protocols signed in 1988 and 2010 and that entered into force in 1990 and 2013, respectively). The new treaty is expected to promote further mutual investment and economic exchanges between the two countries.
The newly signed treaty completely revamps the existing treaty. The business profits article is updated, and the treaty contains an arbitration provision in the mutual agreement procedure article and includes a provision for the assistance in the collection of taxes.
In addition, the treaty provides for the following reductions in the withholding tax rates on dividends, interest and royalties:

  • Dividends will be exempt where the recipient holds at least 10% of the voting power of the dividend-paying company for at least six months, ending on the date on which entitlement to the dividends is determined, as well as where the dividends are derived from certain activities and are paid to a pension fund; otherwise, the rate will be 10% (currently, a 5% rate applies where dividends are paid from a Belgian company to a Japanese company (10% where dividends are paid from a Japanese company to a Belgian company) that holds at least 25% of the voting shares of the payer company for the six-month period immediately preceding the date the dividends become payable; otherwise, the rate is 15%); and
  • Interest and royalties generally will be exempt, except that a 10% withholding tax rate will apply to certain interest (currently, a 10% rate generally applies to both interest and royalties).

The treaty also contains a limitation on benefits (LOB) provision that will result in the denial of the reduced withholding tax rates if the requirements of the LOB are not met.
The new treaty will enter into force once the ratification procedures are completed by both countries.

Source: Deloitte