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Tax Reforms

Bold Tax Incentive Initiatives

Corporate tax, inheritance tax, and income tax have been set so that businesses and people who have been engaged in the asset management business overseas can easily conduct similar business in Japan.

Current Status
Corporate tax / For Asset management firms 30%
Performance-based compensation of directors
Listed companies:deductible
Private companies:not deductible
Inheritance tax / For heirs of foreign residents in Japan 0-55%
Living in Japan over 10 years:worldwide assets
Living less than 10 years:tax on only assets in Japan
Income tax / For fund managers 0-55%
Carried interests - distribution allocated returns in excess of their capital contribution ratio
Unclear if it is a capital gain or not
Solution
A private, non-family company including a 100% subsidiary of a listed company which mainly operates asset management business should be able to deduct its performance-based compensation with a number of conditions, including where the calculation methods are described in its business reports filed under the Financial Instruments and Exchange Act and disclosed publicly through the JFSA website. (Sequentially applied after relevant law enters into force in 2021 November, expected)
Assets outside of Japan that a foreign national who entered Japan with a valid working visa holds should be exempt from Japanese inheritance tax regardless of their years of residence in Japan when the heir receives the assets as a non-resident. (2021 April 1st)
When a profit distribution of a carried interest has an economic rationality, that profit should be taxed as a capital gains tax (20%).
(2021 April 1st, click here for detail)

This creates a prime opportunity to consider setting up a company in Japan.

Tax Measures for Overseas Asset Managers

Tax exemption measures for interest pertaining to margin for over-the-counter derivatives transactions

A measure that exempts interest on the margin deposits that foreign financial institutions have deposited with domestic financial institutions from taxation for over-the-counter derivatives transactions conducted between financial institutions.

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Tax exemption measures pertaining to cross-border bond repurchase agreement (repo transactions)

Measures to make the difference in repo transactions received by foreign financial institutions, etc. from Japanese financial institutions, etc. non-taxable in relation to cross-border bond repurchase agreements (repo transactions).

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Measures for Japanese Sukuk (Islamic bonds)

In order to enable investment by Islamic investors, a measure to exempt the registration and license tax related to dividends paid to overseas investors and the redemption of real estate from the trust pertaining to the Japanese version of Sukuk with regard to corporate bond-type beneficial interest (Japanese version of Sukuk) issued by special purpose trust.

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Clarification of requirements for independent agents (Agent PE)

Clarify the requirements for a domestic investment management business operator that has concluded a discretionary investment contract with a foreign fund to be an independent agent with regard to the domestic taxation relationship of a limited partner of a foreign fund that is a non-resident or a foreign corporation.

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