Japan: Increase in withholding tax on securities income proposed from 2013 - update
Reference
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Further to our Taxflash T11072, dated 8 November 2011, we would like to provide a further update on the proposed increase in withholding tax on securities from 2013.
Effective
1 January 2013
the Japanese government has revised its proposal for a temporary increase in withholding tax (WHT). The new proposal provides an increase, for a period of 25 years, to secure funding for reconstruction after the earthquake of 11 March 2011.
According to the proposal and subject to approval during the current Diet session, national tax on interest and dividends would increase by 2.1% (meaning, for example, an increase from 7% to 7.147% for dividend income paid to foreign investors until December 2013).
Note: The J-BIEM (the tax-exemption scheme for Japanese fixed income instruments) is not within the scope of the proposal and so will not be affected.
Details of the increase
Further to the conference held by the Japanese Governmental Tax Research Commission on 15 November 2011, the Cabinet Office of the Government of Japan has published revised rates of temporary increased withholding tax on interest and dividend income. In the proposal, rates will increase by 2.1% for 25 years starting from 1 January 2013. This temporary increase would apply to national tax only. The previously proposed increase was 4% for 10 years.
Note: In the following tables, N=National tax; L=Local tax.
Dividends
| Type of investor | Current rate | Rate from January 2013 | Rate from January 2014 | Rate from January 2038 |
| Japanese investors | 10% (= 7% N + 3% L) | 10.147% (= 7.147% N + 3% L) | 20.315% (= 15.315% N + 5% L) | 20% (= 15% N + 5% L) |
| Foreign investors | 7% | 7.147% | 15.315% | 15% |
Interest
| Type of investor | Current rate | Rate from January 2013 | Rate from January 2014 | Rate from January 2038 |
| Japanese investors | 20% (= 15% N + 5% L) | 20.315% (= 15.315% N + 5% L) | 20.315% (= 15.315% N + 5% L) | 20% (= 15% N + 5% L) |
| Foreign investors | 15% | 15.315% | 15.315% | 15% |
Note: The special taxation treatment on dividend income (7% for foreign investors) is due to expire in December 2013 and the Diet's approval is required for any further extension.
The details of the above-mentioned increases are not finalised and are subject to change. We will continue to monitor the progress of this proposal and will provide more information when it becomes available.
The above information is from the Cabinet Office of the Government of Japan. More information (not in English) is available from the Cabinet Office website (www.cao.go.jp/zei-cho/gijiroku/zeicho/2011/index.html).