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The Transition Rules Regarding Articles 19 and 20 of the USA-Japan Income Tax Treaty of 2003

  1. The new USA-Japan income tax treaty of 2003 has now replaced the old USA-Japan income tax treaty of 1971.
  2. The relevant dates are as follows:
    1. The 2003 treaty entered into force March 30, 2004 because of the exchange of the instruments of ratification between the two governments on that date.
    2. The 2003 treaty provisions for withholding at source on passive income became effective on July 1, 2004.
    3. The 2003 treaty provisions on all other taxes became effective on January 1, 2005.
  3. Article 19 (on teachers/researchers) of the 1971 treaty has now become article 20 (on teachers/researchers) of the 2003 treaty, with modifications.
  4. Article 20 (on students/trainees) of the 1971 treaty has now become article 19 (on students/trainees) of the 2003 treaty, with modifications.
  5. Article 19 (on students/trainees) of the 2003 treaty has eliminated the exemption for student wages of $2,000 per year, and has eliminated the exemption for scholarships/fellowships received by students, trainees, and researchers.
  6. Article 20 (on teachers/researchers) of the 2003 treaty has retained the 2-year exemption on teacher/researcher wages and salaries; however, it has imposed the new condition that such teachers/researchers must remain residents of Japan in order to qualify for the exemption on wages and salaries.  Thus, a Japanese teacher/researcher who is in the USA long enough to become a resident alien of the USA may lose the benefit of article 20 on the residency starting date of his U.S. residency unless he can show that he is still a resident of Japan under the rules of article 4 (residency) of the 2003 treaty.
  7. Article 30 (Entry into Force) of the 2003 treaty contains the transition rules for changing over from the 1971 treaty to the 2003 treaty.
  8. With respect to students/trainees and teachers/researchers, the transition rules are as follows:
    1. A Japanese student/trainee or teacher/researcher who was present in the USA on March 30, 2004, and on that date was eligible for the benefits of articles 19 or 20 of the 1971 treaty, shall continue to be eligible for the benefits of articles 19 and 20 of the 1971 treaty for the maximum time limits allowed under the 1971 treaty (maximum  5 calendar years for students/trainees and maximum 2 years for teachers/researchers).  Thus, it is legally allowable that a Japanese student/trainee who entered the USA in January, 2004 could continue to exempt $2,000 of his student/trainee wages annually, and 100% of his Scholarship/fellowship income, for calendar years 2004, 2005, 2006, 2007, and 2008 under article 20 of the 1971 treaty.
    2. A Japanese student/trainee or teacher/researcher who entered the USA after March 30, 2004 could utilize the benefits of articles 19 and 20 of the 1971 treaty for the remainder of calendar year 2004 because articles 19 and 20 of the 2003 treaty did not become effective until January 1, 2005.
    3. A Japanese student/trainee or teacher/researcher who entered the USA after March 30, 2004 could elect to continue to use the benefits of articles 19 or 20 of the 1971 treaty for the entire calendar year of 2005 if he chooses to do so; however, he cannot use the benefits of articles 19 or 20 of the 1971 treaty after December 31,  2005.

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Page Last Reviewed or Updated: 24-Mar-2014