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ECONOMY > Trade

Japan, Russia to lower tax rate for Japanese corporations investing in Russia

  • September 7, 2017
  • , Yomiuri , p. 1
  • JMH Translation

The Japanese and Russian governments have decided to amend their bilateral Tax Convention to lower the upper limit of the tax rate on investment returns that Japanese companies earn in Russia from 15% to 5%. The new rule will also apply to investment returns Russian companies earn in Japan.

 

Tokyo and Moscow will sign the amendment to coincide with their summit meeting scheduled for Sept. 7 and aim to effectuate the revised agreement within the year. The amendment is intended to encourage Japanese companies to invest in Russia by setting up subsidiaries.

 

Some 450 Japanese firms were operating in Russia as of 2016. Currently, when Japanese companies earn dividend income from their Russian subsidiaries, they have to pay up to 15% of this income as tax to Russia. The tax rate is higher than the rates set in the tax conventions Japan has signed with the U.S. and European companies. “It is discouraging companies from expanding into Russia,” a Japan-Russia diplomatic source says.

 

The amendment will reduce the upper limit of the tax rate to 5% for the dividend income that parent companies earn from subsidiaries and to 10% for the returns earned by investors with no capital ties with investees to bring them into line with those set between Japan and Western nations.

 

Also, the current maximum tax rate on (1) the interests and profits that Japanese financial institutions receive from Russian companies, and (2) the royalties on patents and trademarks that Japanese companies receive from Russian companies is 10%. But this tax will be abolished.

 

Japan is hoping that the amendment will strengthen economic cooperation with Russia and lay the groundwork for resolving the Northern Territories dispute with the Kremlin.

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