Double Taxation between Japan and Serbia

Measures to eliminate double taxation between Japan and Serbia

In order to improve bilateral economic and financial cooperation between Serbia and Japan, the Minister of Finance of the Republic of Serbia, Siniša Mali, and the Ambassador of Japan in Serbia, Đunići Marujama, signed on July 21st, 2020 Agreement between Serbia and Japan on the elimination of double taxation in relation to income taxes and the prevention of tax evasion and avoidance.

At the session held on December 29, 2020, the National Assembly of the Republic of Serbia adopted the Law on Confirmation of the Agreement between the Republic of Serbia and Japan on the Elimination of Double Taxation in Relation to Income Taxes and Prevention of Tax Evasion, which ratified the above agreement.

The contract regulates the following issues:

  • Persons to whom the treaty applies – persons who are residents of one or both Contracting States.
  • Taxes to which the Agreement applies:

In Japan:

  • income tax;
  • corporate tax;
  • special tax for reconstruction;
  • local corporate tax;
  • local taxes on residents. (“Japanese tax”).

In Serbia:

  • corporate income tax;
  • personal income tax. (“Serbian tax”).

The taxation of certain types of income is specially regulated, among which are some of the following:

REAL ESTATE INCOME

Income derived by a resident of a Contracting State from the direct use, rental or other use of immovable property situated in the other Contracting State can be taxed in that other State.

PROFIT FROM COMPANIES

The profits of an enterprise of a Contracting State shall be taxable only in that Contracting State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein.

If an enterprise carries on business in the other Contracting State through a permanent establishment, the profits of the enterprise may be taxed in that other Contracting State but only so much of them as is attributable to that permanent establishment.

DIVIDENDS

Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

They may also be taxed in that Contracting State, in accordance with the laws of that Contracting State and under the conditions provided for in the Treaty.

INTEREST

Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

It may also be taxed in that Contracting State under the conditions laid down in the Treaty.

CAPITAL GAIN

Gains derived by a resident of a Contracting State from the alienation of immovable property situated in the other Contracting State may be taxed in that other State.

Gains from the alienation of any property other than immovable property referred to in Article 6 of this Agreement, which forms part of the business property of a permanent establishment held by an enterprise of a Contracting State in another Contracting State or of movable property belonging to a permanent establishment Contracting parties for the pursuit of independent personal activities, including income from the alienation of that permanent establishment (alone or together with the whole undertaking) or a fixed base, may be taxed in that other Contracting State.

Gains derived by an enterprise of a Contracting State which uses ships or aircraft in international traffic, from the alienation of such ships or aircraft or from any property other than immovable property referred to in Article 6 of this Agreement, used for the use of such ships or aircraft shall be taxable only in that State. contractors.

Gains derived by a resident of a Contracting State from the alienation of shares of a company or comparable interests such as interests in a partnership or trust may be taxed in the other Contracting State if, in any period during the 365 days preceding the alienation, those shares or comparable interests are at least 50 per cent of their value derived directly or indirectly from immovable property, as defined in Article 6 of this Agreement, located in that other Contracting State, unless those shares or comparable interests are traded on a recognized stock exchange, the resident and related persons residents own a total of 5 percent or less, of the classes of those shares or of comparable interest.

Gains from the alienation of any property other than that referred to in the preceding paragraphs, shall be taxable only in the Contracting State of which the alienator is a resident.

METHOD OF ELIMINATION OF DOUBLE TAXATION

  • In Japan, it is eliminated as follows:In accordance with the provisions of the laws of Japan relating to the granting of credits from the Japanese tax, for tax payable in any country other than Japan, if a resident of Japan earns income from Serbia which, in accordance with the provisions of this agreement, may be taxed in Serbia, the amount of Serbian tax paid in connection with that income is recognized as a credit in relation to the Japanese tax levied on that resident. The loan amount cannot be higher than the amount of Japanese tax related to that income.

In Serbia, double taxation is eliminated as follows:

  • If a resident of Serbia earns income that may be taxed in Japan in accordance with the provisions of this Agreement, Serbia shall grant as a deduction from the Serbian income tax of that resident an amount equal to the Japanese tax paid in Japan. That deduction cannot be greater than the portion of the Serbian income tax, as calculated before the deduction is made, which corresponds to the taxable income in Japan.
  • If, in accordance with a provision of the Agreement, the income earned by a resident of Serbia is exempt from tax in Serbia, Serbia may, when calculating the tax on other income of that resident, take into account the exempt income.

This agreement is expected to encourage further mutual investment and economic exchange between the two countries, while eliminating double taxation and preventing international tax evasion and avoidance.