The U.S.-Japan Tax Treaty concluded between the United States and Japan plays an important role for taxpayers in both countries. Based on this treaty, Japanese taxpayers who receive income payments from the United States and the US taxpayers who receive income payments from Japan will be able to properly process their taxes. Form W-8BEN (Certificate for Foreign Status of Beneficial Owner for US Tax Withholding and Reporting for Individual) and Form 6166 (Certification of U.S. Tax Residency) are part of this process and are discussed in this article. Let us now explain its role and the basics of the U.S.- Japan tax treaty.
The U.S.-Japan Tax Treaty
What is the U.S.-Japan Tax Treaty?
The U.S.-Japan Tax Treaty is an important agreement regarding income taxation between the United States and Japan. The latest U.S. tax treaty was revised in 2019. This treaty was established to avoid double taxation and prevent tax fraud. It also establishes rules for reducing or exempting taxes on income. Specifically, it includes provisions to prevent U.S. withholding taxes from being imposed on Japanese taxpayers.
The U.S.-Japan Tax Treaty has provisions for each type of income, including where it will be taxed and the rate at which it will be taxed.
W-8BEN (Certificate for Foreign Status of Beneficial Owner for US Tax Withholding and Reporting for Individual)
What is Form W-8BEN? Who needs to submit?
Form W-8BEN is a document filed by nonresidents for U.S. tax purposes to report income from the United States.
This document certifies that you are a non-resident in the United States and allows you to benefit from tax treaties on income generated in the United States.
The following individuals must submit Form W-8BEN:
- An alien who earns income in the United States or a nonresident for U.S. tax purposes.
- Foreign national or nonresident under U.S. tax law who claims a tax treaty relief or exemption for income withheld in the United States.
Submission location
Form W-8BEN is submitted to the U.S. tax withholding agent making the payment and the financial institution receiving the payment.
Timing of submission
- Must be filed before income payments are received or income is accrued.
- Additionally, Form W-8BEN must be updated with any changes within 30 days of the date the changes occur.
Form W-8BEN submission example
<Example 1>
Tomoko is a Japanese citizen living in Japan who opens an account and manages her assets at a financial institution in the United States. Since Tomoko is classified as a non-resident in the United States, she was recently requested to submit a Form W-8BEN by a U.S. financial institution, which she properly submitted. Tomoko received dividend income in the United States. Normally, dividend income is subject to 30% withholding tax, but by filing Form W-8BEN, Tomoko benefited from the Japan-U.S. tax treaty and the withholding tax was reduced to 10%.
Form 6166 (Certification of U.S. Tax Residency)
What is Form 6166? Who needs it?
This document is used by the U.S. government to certify that a taxpayer who has filed an income tax return (Form 1040) is a resident of the United States. Certification on U.S. Treasury letterhead.
If you have not filed a US income tax return (Form 1040), you will generally not be able to receive Form 6166. Therefore, they are not eligible for exemption or reduction measures under the U.S.-Japan tax treaty.
Form 6166 is issued for a fee of $85 per application.
Required for U.S. residents who receive income payments outside the U.S., such as Japan, to prove to a foreign government such as Japan that they are U.S. residents in order to benefit from a tax treaty. .
Submission location
Form 6166 (Certificate of U.S. Taxpayer Residency) is required by Japanese and other foreign companies and institutions when making payments.
Timing of submission
- Must be filed before income is earned or accrued.
- You may need to resubmit Form 6166 because you must periodically reconfirm your U.S. residency status. Therefore, after a certain period of time, you may receive a request for resubmission from your payment institution.
Form 6166 submission example
<Example 2>
As a resident of the United States, Hiroshi files an income tax return (Form 1040) every year. Hiroshi publishes books in Japan and receives copyright income from them. He was asked to submit Form 6166 (Certificate of U.S. Taxpayer Residency) by his Japanese publisher. Hiroshi provided the publisher with Form 6166 along with his U.S. address and social security number (tax identification number). As a result, we received benefits based on the Japan-U.S. tax treaty, and the Japanese withholding tax on Hiroshi’s copyright income was reduced to zero.
Summary
The U.S.-Japan Tax Treaty is an agreement between the U.S. and Japan regarding income taxation, which helps to properly handle taxes.
Form W-8BEN is a document filed by non-residents who receive income from the United States and is required to receive tax treaty benefits.
Form 6166 is a document that proves your U.S. residency and is required if you receive income payments from a foreign company.
Fill it out correctly, file on time, and take advantage of tax treaty benefits to optimize your taxes.
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