Double Tax Agreement between New Zealand and Japan: Understanding the Basics
The Double Tax Agreement (DTA) is an international agreement between two countries that seeks to avoid double taxation of income and assets. The DTA sets out the rules on how income is taxed in the country of origin and the country of residence. New Zealand and Japan signed a DTA in 1986, which came into force in 1987. The agreement aims to promote trade and investment between the two countries by eliminating tax barriers that could discourage economic activity.
Why is the Double Tax Agreement important?
The DTA provides for the allocation of taxing rights between the two countries, helps to prevent double taxation, and reduces the tax burden on overseas investment and trade. This means that businesses and individuals operating in both countries can avoid paying tax twice on the same income, and can instead pay the tax in only one country. The DTA also contains measures to assist in the exchange of information between the two countries, which helps to prevent tax evasion and avoidance.
What does the Double Tax Agreement cover?
The DTA between New Zealand and Japan covers the following types of income:
– Business profits: income from any business activities carried out by a company or individual in either country.
– Dividends: income from shares, dividends, or other rights that provide a distribution of profits from a company.
– Interest: income from any type of debt, including bonds, loans, and debentures.
– Royalties: income from the use of intellectual property rights, such as patents, trademarks, and copyrights.
– Capital gains: income from the sale of assets, such as stocks, shares, property, and businesses.
The DTA also covers income from other sources, such as salaries, pensions, and government service.
How does the Double Tax Agreement work?
The DTA works by allowing one country to tax the income of a resident of the other country only if the income is not taxed in the country of residence. For example, a New Zealand resident who earns income in Japan will only pay tax on that income in one country, depending on where their tax residency lies. This reduces the tax burden on international transactions and promotes economic activity between the two countries.
In order to take advantage of the DTA, individuals and businesses must ensure that they meet the requirements of the agreement. This includes providing proof of residency, complying with the relevant tax laws of both countries, and keeping accurate records of all income and expenses.
In summary, the Double Tax Agreement between New Zealand and Japan helps to promote economic activity and investment between the two countries by reducing the tax burden on international transactions. The DTA covers a range of income sources, and requires compliance with the tax laws of both countries in order to take advantage of its benefits. As a result, businesses and individuals operating in both New Zealand and Japan can benefit from reduced taxation and increased economic opportunities.