New U.S.-Japan Treaty Lowers Tax on Dividends, Interest

Washington, DC, November 7, 2003 - Representatives of the United States and Japan recently signed a new income tax treaty that reduces tax-related barriers to trade and investment between Japan and the United States.

Background
The treaty provides a reduced withholding rate of 10 percent on dividends and interest paid by a resident of one country to a resident of the other. In addition, dividends and interest paid to a pension fund are generally exempt from any withholding under the new tax treaty. Dividends paid by regulated investment companies are explicitly identified in the treaty as being eligible for both the 10 percent withholding rate on dividends and the 0 percent rate on dividend payments to pension funds. The new treaty also contains a provision to confirm that U.S. funds are eligible for treaty benefits on Japanese-source income.

The treaty is now under consideration by the U.S. Senate. If ratified before April 1, 2004, the new withholding rates will apply as of July 1, 2004; otherwise, the new withholding rates will apply as of January 1, 2005. Other treaty provisions will take effect for tax years beginning on or after January 1 following ratification.

ICI Position
The Institute has worked with U.S. trade representatives and Japanese regulators to ensure that the tax treatment of foreign financial instruments enables Japanese investors to meet their long-term savings and investment needs.

Related Links
A section of this website is devoted to the Institute's work with representatives of foreign nations and U.S. government officials to seek legislative and regulatory improvements that enhance both the competitiveness of U.S. investment companies abroad and the level of service to investors in foreign markets.