(Note)The terms "JGBs","T-Bills"and "STRIPS" in this section are book-entry transfer JGBs unless stated otherwise.
1. Requirements for tax exemption
| Types of securities | Coupon-bearing bonds | T-Bills | STRIPS * |
|---|---|---|---|
| Item subject to tax exemption | Interests and profit from redemption on JGBs** | Profit from redemption on T-Bills ** | Profit from redemption on STRIPS ** |
| Eligible investors | Nonresident individuals/ foreign corporations*** |
Nonresident individuals/ foreign corporations*** |
|
| Holding method | Holding in transfer account with JBESPs/QFIs | ||
**Profit from redemption means the margin profit when the redemption price exceeds the acquisition price.
***Includes investors as described below.
Trustees of Qualified Foreign Securities Investment Trusts
Nonresident individuals and foreign corporations that are trustees of foreign investment trusts(the foreign investment trust is (i) a securities investment trust or (ii) a public or corporate bond management investment trust (as prescribed in the Japanese tax laws)) without corporate status will be eligible for tax exemption about the interests, etc. on JGBs attributed to this trust property, provided that the trusts fulfill the either A or B (i.e. Qualified Foreign Securities Investment Trusts(QFSIT)) (please click here for some samples of foreign investment trusts eligible for tax exemption.):
- The offer for subscription of beneficiary certificates for the establishment of the foreign investment trust is made outside Japan pursuant to laws and regulations equivalent to the provisions of Article 2, Paragraph 3, Item 1 of the Financial Instruments and Exchange Act (to solicit subscription from 50 or more investors (excluding the cases involving solicitation of only qualified institutional investors)) and, in addition, the prospectus for the foreign investment trust and other documents similar thereto contain statements to the effect that the solicitation for the subscription is equivalent to solicitation made pursuant to the same provisions; and
- If the public offering of beneficial rights based on the establishment of the foreign investment trust has been also conducted in Japan, the following requirements must be satisfied;
(1) the offer for beneficiary rights are made via public offering (the provisions of Article 2, Paragraph 3, Item 1 of the Financial Instruments and Exchange Act) in Japan,
(2) profit arising from the beneficiary rights offered in (1) is allocated through a party handling payments within Japan stipulated in Article 3-3, Paragraph 1 or Article 8-3, Paragraph 1 of the Act on Special Measures Concerning Taxation.
(3) prospectus or other similar documentation of the foreign investment trust note that the offer is made and profits are allocated in accordance with (1) and (2) above.
- All of the beneficiary rights of the foreign investment trust must be acquired as trust assets for other QFSITs, and prospectus or other similar documentation of the foreign investment trust must state that all of these beneficiary rights are acquired as trust assets for other QFSITs.
Trustees of Foreign Pension Trusts
To the nonresident individuals and foreign corporations that are the beneficiaries of the trusts established under the foreign legislatures, tax-exemption measures shall be applied to the interest, etc. on JGBs attributed to such trust property of the relevant trust only when such trust satisfies all of the following requirements (“Foreign Pension Trusts(FPTs)”):
A.Those similar to the retirement pension trusts as specified in Article 13, Paragraph 3, Item (ii) of the Income Tax Act (limited to the trusts the beneficiaries of which are deemed to hold properties and liabilities attributed to the trust property (hereinafter called as “Trusts Taxable on Beneficiaries”)
B.Those mainly operated with an aim of managing or paying retirement pensions, retirement allowances, etc. and remunerations similar thereto.
Partners in partnership agreement or beneficiaries of Trusts Taxable on Beneficiaries (excluding FPTs)
Only in the event where nonresident individuals or foreign corporations that are partners of partnership agreements or beneficiaries of Trusts Taxable on Beneficiaries excluding FTPs performed a certain procedures for obtaining the grant of tax exemption measures such as submitting of Application Form for Withholding Tax Exemptions and the operating partner of such partnership or trustee of such trust performed a certain procedures such as submissions of Notification Form for Withholding Tax Exemptions on Partnership or Trust, the tax-exemption measures may be applied to the interest, etc. on JGBs attributed to partnership property of partnership agreement or trust property of Trusts Taxable on Beneficiaries.
The agreements covered by these procedures are as follows:
- Partnership agreements based on Japanese Civil Law
- Investment Limited Partnership agreements
- Limited Liability Partnership agreements
- Agreements in foreign countries similar to the above