On 2 February, a new Japan-UK Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains was signed in London by Ambassador Nogami and the British Paymaster General, the Rt Hon Dawn Primarolo, MP.
More than 35 years had passed since the previous convention entered into force in 1970. As the close economic relationship now existing between Japan and the UK had rendered some aspects of that convention unsuitable, the two governments had agreed to commence negotiations on a new convention to replace it. In July 2005, both governments had reached agreement in principle on the draft of a new convention prior to its formal signing.
The new convention represents a comprehensive revision of the previous one. In particular, reflecting the close economic ties between the two countries and in order to encourage investment in both directions, the rate of tax to be imposed in the sourse country in the form of dividends, interest and royalties, has been drastically decreased. Moreover, royalties, interest to be received by financial institutions, and inter-company dividends (with certain limits) have been exempted from tax in the source country.
The signing of the new convention is expected to facilitate an increase in cross-border investment in both directions. Japanese companies with operations in the UK should benefit accordingly, while British companies will be more likely to invest in Japan, resulting in a positive impact on the economies of both countries.