Japanese-Estonian taxation treaty

The government approved the taxation treaty agreement on Thursday to avoid double taxation between Estonia and Japan by handing over the power to the finance minister to sign the agreement on behalf of Estonia.

The negotiations of the agreement between Estonia and Japan followed the direction of Estonia’s tax agreement policy of leaving the residential country of the recipient of income with as extensive rights of taxation as possible—the country of the source of income has been left with as low retention rates as possible, and as high a threshold has been set for establishing a permanent residence in the country of the source of income.


The aim of double taxation avoidance agreements is to promote investments, for example by limiting the rights of the state to impose higher taxes on the residents of the other party, ensure the equal treatment of persons, avoiding the more favorable taxation of its citizens, and eliminate double taxation that may occur as a result of the combined effect of the laws of the two countries.


According to data of the Bank of Estonia, the sum total of direct investments from Japan to Estonia as of March 31, 2017, was €18.2 million, while the sum total of direct investments from Estonia to Japan was €100,000.


Double taxation avoidance agreements are first and foremost signed for sharing tax receipts between two countries, to exchange information, and for citizens to not pay taxes on the same income in two countries. The agreement distributes the right of taxation of different types of income, like income from employment, business profits, income from real estate, interest income, and dividend income either in favor of the country of which the person is a resident, in favor of the country with the source of income, or between the two countries.


The Organization for Economic Cooperation and Development (OECD) Model Tax Convention, changed according to the tax system of the countries in question, is the basis for drawing up the agreements. In addition to exchanging information, the agreement to be signed between Estonia and Japan is to also regulate the cooperation of tax administrators when collecting taxes.


In order to avoid the abuse of the tax agreement by residents of third countries, the rights of residents to benefits arising from the agreement will be restricted if they do not fulfill certain criteria. Taking into account the suggestions of the OECD, the agreement also includes specified rules of arbitration.


Estonia has signed a double taxation avoidance agreement with 57 countries. Of all the countries in East Asia, Estonia has valid double taxation avoidance agreements with China and South Korea as well.


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