Outline of Tax Exemption Scheme for, etc. on Japan Local Government Bonds and JFM, etc. bonds By satisfying the requirement to file the written applications, etc. foreign investors (non-residents, foreign corporations, etc.) receiving interest, etc. ( 1) from the following, shall be exempt from Withholding Tax and Corporate Tax. 1, etc. on JLGBs in book-entry 2, etc. on JFM bonds, etc. ( 2) in book-entry issued on or before March 31, 2013. ( 1)Includes the difference compared to profit from redemption ( i.e. the amount received as a result of redemption (including retirement by purchase) and acquisition cost). ( 2)Includes bonds issued by Japan Finance Organization for Municipal Enterprises and Japan Finance Corporation for Municipal Enterprises. Outline History Outline of necessary procedures, etc. In the 2007 Tax Re, tax exemption scheme for interest on JLGBs in book-entry received by non-residents, etc. was established, and has been effective since January, 2008. In the 2010 Tax Re, the procedure for tax exemption for interest on JLGBs in book-entry received by non-residents, etc. shall be simplified and the scope of non-taxable entities shall be widened. Also, tax exemption scheme for interest on JFM bonds, etc. in book-entry received by nonresidents, etc. shall be established. (Overseas) (Japan) Non-residents, Foreign corporations, etc. Qualified foreign intermediary (QFI) Specified book-entry transfer institution, etc. (Sub-custodians) for Sub-custodians s for Tax Exemption
Outline of the 2010 Tax Re According to the 2010 Tax Re, the following res shall be made. 1Tax exemption scheme for interest on JFM bonds, etc. ( 1) in book-entry received by foreign investors (non-residents, foreign corporations, etc.) shall be established. 2The procedure for interest on JLGBs in book-entry received by foreign investors (non-residents, foreign corporations, etc.) shall be simplified and the scope of non-taxable entities shall be widened.( 2) 3These tax exemption rules shall apply to interest, etc. on JLGBs, etc. in book-entry whose coupon calculation period starts on or after June 1, 2010. ( 1)Includes bonds issued by Japan Finance Organization for Municipal Enterprises and Japan Finance Corporation for Municipal Enterprises. ( 2)Tax exemption scheme for on JLGBs in book-entry received by foreign investors (non-residents, foreign corporations, etc.) has been effective since January, 2008.
Domestic corporations (not less than 100M of stated capital) Individuals (Residents) Japan Tax imposed (no WHT) (Corporation tax imposed) approx. 70 trillion yen (as of the end of FY2008) From FY2003 Tax imposed (20% of WHT) (Separate WHT) Bond markets JGBs in bookentry approx. 680 trillion yen (as of the end of FY2008) Local Government Bonds in bookentry JFM bonds in book-entry approx. 20 trillion yen (as of the end of FY2008) Corporate bonds in bookentry FILP agency bonds Complicated procedure Tax-exempt From 1999 Overseas Tax-exempt From 2007 Tax imposed in Japan (15 %of WHT ) In addition, tax shall be imposed in foreign countries according to foreign tax systems R e f o r m 2 Simplification of Procedures, etc. for Tax Exemption Scheme for on JLGBs in book-entry received by foreign investors R e f o r m 1 Establishment of Tax Exemption Scheme for on JFM bonds, etc. in book-entry received by foreign investors
Outline of Simplification of the Procedure for Tax Exemption (Related ination for Re2) The procedure shall be simplified for foreign investors (non-residents, foreign corporations, etc.) as follows. 1s (non-residents, foreign corporations, etc.) shall file written applications for tax exemption to the head of the local tax authority for the relevant sub-custodian, not to the head of the local tax authority for each issuer of bonds to which the tax exemption scheme is expected to apply. (Note) Statements of, which were required to be prepared in order for foreign investors (non-residents, foreign corporations, etc.) to get the benefits of the tax exemption scheme, shall be abolished if certain procedural requirements are satisfied. 2 for Qualified foreign intermediary (QFIs) Foreign indirect account management institutions and foreign further indirect account management institutions (FIAMIs) shall file written application for QFIs to the Commissioner of the National Tax Agency, not to the head of the local tax authority for each issuer of bonds in connection with which such FIAMIs are expected to be QFIs. 3Individual records of beneficial owners Individual records of beneficial owners, which are currently prepared by Specified book-entry transfer institution, etc. shall be abolished if Tax-Exempt Category Accounts are opened and certain procedural requirements are satisfied. 4 (Source) May, 2010 FSA partly revised
Complicated current system Simplified new system for issuer A for issuer B for issuer C for sub- custodian Commissioner of the NTA Issuer A Issuer B Issuer C Excessive paperwork Simplified Japan Securities Depository Center, Inc. Specified book-entry transfer institution, etc. (Sub-custodians) Individual record of beneficial owners Qualified foreign intermediary (QFI) Rule specific to Japan Abolished Japan Securities Depository Center, Inc. Specified book-entry transfer institution, etc. (Sub-custodians) Qualified foreign intermediary(qfi) (Source) May, 2010 FSA partly revised