Skip to Content

Procedures Regarding Bond Gensaki Transactions, etc. (Requirements for Tax Exemption,etc.)

1. Requirements for tax exemption, etc.

(1) Bond Gensaki Transactions, etc. between specified financial institutions, etc. and foreign financial institutions, etc. regarding Book-entry transfer JGBs, etc.

Tax exemption targets Interest, etc. that foreign financial institutions, etc.* receive from specified financial institutions, etc.** on their Gensaki Transactions, etc. (including both Bond Gensaki Transactions (bond transactions with repurchase or resale agreements) and Securities Lending Transactions (lending or borrowing of securities secured by cash or securities)) regarding book-entry transfer JGBs, etc.

* Foreign financial institutions, etc. cover the following foreign corporations:

A. Foreign corporations engaging in banking business, financial instruments transactions or insurance business in their respective countries in compliance with law in their respective countries
B. Foreign clearing institutions
C. Foreign central banks
D. International organizations established under international agreements

(Note): If the above A. mentioned foreign corporations among the foreign financial institutions, etc. receiving interest fall under any of the following three categories, the tax exemption measure will not be applied. 

a. Foreign corporations falling under the category of foreign controlling shareholders, etc. of specified financial institutions, etc. paying specified interest (excluding corporations in treaty partner countries, etc.)
b. Foreign corporations falling under the category of foreign affiliates
c. Foreign corporations that are exempt from foreign corporation tax on interest they receive in countries where their headquarters are located (excluding cases in which the interest is attributable to business operations of office, etc. located in countries or regions other than countries where their headquarters are located and is subject to foreign corporation tax in the countries or regions)

** Specified financial institutions, etc. cover the following corporations:

A. Financial institutions defined in Article 8, Paragraph 1 of the Act on Special Measures Concerning Taxation, and financial instruments transaction business operators, etc. and money market brokers defined in Article 8, Paragraph 2 of the same Act, falling under the category of  financial institutions, etc. defined in Article 2, Paragraph 2 of the Act on Collective Liquidation of Specified Transactions Conducted by Financial Institutions, etc. (limited to the corporations having business operations, etc. in Japan)
B. Clearing instistuions in Japan
C. Bank of Japan

Requirements, etc. for Bond Gensaki Transactions are as follows:

[Requirement for transactions]

  • The period between a bond sale or purchase date and a bond repurchase or resale date shall not exceed 6 months.
  • The contract includes a Close-out Netting agreement defined in Article 3 of the Act on Collective Liquidation of Specified Transactions Conducted by Financial Institutions and certain agreements to reduce any risk that could occur because of price fluctuations or other reasons for the bonds used for the transactions.
  • The market price of the bond, used for the Bond Gensaki Transactions, on the contract date is equal to or higher than the price agreed upon for the transaction.

[Target bonds]

  • Book-entry transfer JGBs, Book-entry transfere Local Government Bonds or Book-entry transfer Company Bonds which are defined in the Act on Book-Entry of Corporate Bonds, Shares
  • Bonds issued or guaranteed by foreign governments or local governments of foreign countries
  • Bonds issued or guaranteed by foreign government corporations or international organizations
  • Bonds issued by specified financial institutions in OECD member countries other than Japan

Requirements, etc. for Securities Lending Transactions are as follows:

[Requirement for transactions]

  • The period between a securities  lending or borrowing date and a seurity receiving or returning date shall not exceed 6 months.
  • The contract includes a Close-out netting agreement defined in Article 3 of the Act on Collective Liquidation of Specified Transactions Conducted by Financial Institutions.
  • The sum of the cash collateral amount and the value of securities collateral amount for the transactions on the transaction agreement date shall be between 50% and 150% of the value of securities for lending or borrowing through the transaction on the agreement date.

[Target bonds and stocks]

  • Bonds subject to Gensaki Transactions
  • Listed stocks, etc.

 

(2) Bond Gensaki Transactions between specified financial institutions, etc. and specified foreign corporations regarding Book-entry transfer JGBs, etc.

 
Tax exemption targets Interest, etc. that specified foreign corporations* receive from specified financial institutions, etc. regarding Bond Gensaki Transactions that started between April 1, 2017, and March 31, 2026. (If the bond used for Bond Gensaki Transactions is listed in [Target Bonds] B or C below, the bond is limited to those listed in (1)**A above.)

* Specified foreign corporations are foreign corporations other than foreign financial institutions, etc. (limited to corporations in treaty partner countries).
The above condition includes cases where specified foreign corporations receiving interest are trustees of Qualified Foreign Securities Investment Trusts.

Note: This tax exemption does not apply if specified foreign corporations that receive interest (excluding trustees of Qualified Foreign Securities Investment Trusts) fall under foreign affiliated persons, such as specified financial institutions, etc. that pay the interest.

 

Requirements, etc. for Bond Gensaki Transactions are as follows:

[Requirement for transactions]

  • The period between a bond sale or purchase date and a bond repurchase or resale date shall not exceed 3 months
  • The contract includes a Close-out netting agreement defined in Article 3 of the Act on Collective Liquidation of Specified Transactions Conducted by Financial Institutions and certain agreement for Bond Gensaki Transaction to reduce any risk that could occur because of price fluctuations or other reasons for the bonds used for the transactions.
  • The market price of the bond, used for the Bond Gensaki Transactions, on the contract date shall be equal to or more than 75% of the price agreed upon for the transaction
  • The outstanding balance of Bond Gensaki Transactions with specified foreign corporations shall be equal to or less than 50% of the total outstanding balance of Bond Gensaki Transactions and Bond Lending Transactions.
  • The interest rate on the Bond Gensaki Transaction shall be equal to or less than the interest rate obtained by the following formula according to the classification of bonds listed in the target bonds below.
a. If the bond used for Bond Gensaki Transaction is the bond listed in the [Target Bonds] (A) below:
＜Formula＞
(The highest of the weighted average overnight unsecured call rate for the previous 3 months to the day before the date of execution of the Bond Gensaki Transaction contract)× 2 + 1 %

b. If the bond used for the Bond Gensaki Transaction is a bond listed in the [Target Bonds] (B and C) below:
＜Formula＞
(The highest of interest rates corresponding to the above item (a) for the following foreign currencies for the 3 months to the day before the date of execution of the Bond Gensaki Transaction contract) × 2 + 1 %

[Target bonds]

A. Book-Entry Transfer JGBs prescribed in the Act on Book-Entry Transfer of Corporate Bonds and Shares

B. Bonds issued and guaranteed by foreign countries (limited to the countries specified below). Limited to those indicated in the following foreign currencies according to the following categories of foreign countries:

a. United States: US currency
b. United Kingdom: British currency
c. Member countries of the European Economic and Monetary Union: European Economic and Monetary Union participating currencies
d. Australia: Australian currency

C. Bonds (limited to those displayed in the currency listed in a. to d. of the above (B), excluding those listed in the above (B)) issued by foreign corporations established under the provisions of special foreign laws and regulations, provided that the foreign corporations are operated under the control of the foreign governments (limited to those listed in a. to d. of the above item (B)) .

* Specified interest represents interest that foreign corporations receive from specified financial institutions, etc. in the above (1) and (2) transactions. If interest that foreign corporations with a Permanent Establishment in Japan receive is income subject to Japanese withholding tax as cited in Article 141-1-a of the Corporation Tax Act, the tax exemption measure will not be applied.

HOME