The income tax treaty between Japan and Serbia entered into force on 5 December 2021. The treaty, signed 21 July 2020, is the first of its kind between the two countries.
The treaty covers Japanese income tax, corporation tax, the special income tax for reconstruction, local corporation tax, and local inhabitant taxes. It covers Serbian corporate income tax and personal income tax.
If a person other than an individual is considered resident in both Contracting States, the competent authorities of both States will determine its residence for the purpose of the treaty through mutual agreement based on its place of head or main office, its place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors. If no agreement is reached, such person will not be entitled to any relief or exemption from tax provided by the treaty.
The following capital gains derived by a resident of one Contracting State may be taxed by the other State:
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Article 21 (Silent Partnership) provides that any income derived by a silent partner that is a resident of a Contracting State in respect of a silent partnership contract (Tokumei Kumiai in the case of Japan) or another similar contract may be taxed in the other State according to the laws of that other State, provided that such income arises in that other State and is deductible in computing the taxable income of the payer in that other State.
Both countries apply the credit method for the elimination of double taxation.
Article 28 (Entitlement to Benefits) includes the provision that the benefits of the treaty may be denied where an enterprise of a Contracting State derives income from the other State and:
The above limitation will not apply, however, if the income derived from the other State emanates from, or is incidental to, the active conduct of a business carried on through the permanent establishment (other than the business of making, managing or simply holding investments for the enterprise's own account, unless these activities are banking, insurance or securities activities carried on by a bank, insurance enterprise or registered securities dealer, respectively). Further, benefits may still be granted to a resident of a Contracting State if, in response to a request by such resident, the competent authority of the other State determines that granting such benefits is justified.
Article 28 also includes a general anti-abuse provision, which provides that a benefit under the treaty will not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.
The final protocol signed with the treaty provides that if Serbia concludes an agreement with a third jurisdiction that provides more favorable treatment for the taxation of interest or royalties than provided under Article 11 (Interest) or 12 (Royalties), then the Contracting States shall, at the request of Japan, enter into negotiations with a view to incorporating such more favorable treatment into the Japan-Serbia tax treaty.
The treaty generally applies from 1 January 2022. However, Articles 26 (Exchange of Information) applies from the date the treaty enters into force without regard to the date on which the taxes are levied or the taxable year to which the taxes relate.