Our company has arranged for our advertisement(s) to be displayed on a billboard owned by Company A of Singapore at a stadium in that country during professional sporting events held there.

The billboard usage fee will be borne by our company in Japan and remitted to Company A in advance.

Will withholding tax be levied when paying the billboard usage fee?

Answer

The sign usage fee constitutes a domestic-source income fee for the use of equipment, and is subject to withholding income tax upon payment, at a 20% rate.

However, if Singaporean Company A submits a “Tax Treaty Declaration Form” to the relevant tax office via your company by the day before the signboard usage fee payment date, the tax rate is reduced to 10% under the tax treaty between Japan and Singapore.

Explanation

1 Treatment under Domestic Law

Sign usage fees fall under ‘usage fees for machinery, equipment, and other tools specified by Cabinet Order’. (Income Tax Act Article 161(1)(xi)(c))

“Equipment specified by Cabinet Order” means vehicles and conveyances, tools, as well as fixtures and fittings. (Article 284 (1) of the Income Tax Ordinance)

Signs are classified as fixtures and fittings. (Ministerial Ordinance Concerning the Useful Life of Depreciable Assets – Appendix 1 Category: Equipment and Fixtures)

2 Treatment of Signage Royalties under the Japan-Singapore Tax Treaty

Signage royalties constitute consideration for the use of, or the right to use, industrial or scientific equipment, and are subject to taxation. (Japan-Singapore Tax Treaty Article 12(3))

3 Sources of Income

Under the Japan-Singapore tax treaty, sign usage fees are taxable in Japan based on the debtor principle, which treats the location where the fees are paid as the source of income, regardless of where the sign is used. (Japan-Singapore Tax Treaty Article 12(4))

4 Conclusion

The signboard usage fee constitutes a tool usage fee, and is subject to withholding income tax at a rate of 20% at the time of payment.

However, if Singaporean Company A submits a “Tax Treaty Declaration Form” to the relevant tax office via your company by the day before the signboard usage fee payment date, the tax rate will be reduced to 10% under the tax treaty between Japan and Singapore.