PH, Japan update tax treaty
The Philippines and Japan have signed a renegotiated double taxation agreement, updating a decades-old treaty in a bid to support cross-border investments and business activity between the two countries.
In a statement on Friday, the Department of Finance (DOF) said the two countries signed the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income during President Marcos’ official state visit to Japan on May 28.
“The updated treaty eliminates the risk of double taxation on income earned across both jurisdictions, thereby reducing the cost of doing business and improving tax predictability for both individuals and enterprises,” the DOF said.
“By streamlining cross-border tax treatment, the agreement is expected to create a more stable and efficient environment for trade and investment between the Philippines and Japan,” it added.
According to Japan’s Ministry of Foreign Affairs, the updated convention includes new provisions on the taxation of business profits, investment income, royalties and dispute resolution mechanisms.
Under the revised rules, business profits may only be taxed in the other country if they are attributable to a permanent establishment located there.
The revised treaty also introduced new withholding tax rates on dividends.
Interest income remained exempt if received by governments, while a 10-percent tax rate will apply to other recipients.
Meanwhile, royalties will now be subject to a 10-percent tax rate.
Finance Secretary Frederick Go said the updated treaty reflects the Philippines’ commitment to creating a more competitive and predictable investment environment.
First signed on Feb. 13, 1980, the original agreement aims to avoid double taxation by defining how each country will levy taxes and apply credits to income taxes already paid by citizens and residents of both countries. —NYAH GENELLE C. DE LEON
