Change To Japanese Tax Law Prevents Offshore Tax Break

by Mary Swire, Tax-News.com, Hong Kong

25 February 2004

Capital gains from transfers of stock investment trust securities will no longer be tax-free under an amendment to Japanese tax law passed last year and effective 1 January 2004, which limits the ability of some Japanese investors to dispose of their investments in offshore investment trusts on a tax-free basis.

The change means that where the securities are not listed but publicly offered, a withholding tax of 26% is now imposed on capital gains from transfers. Both the Japanese Securities Dealers Association and the American Chambers of Commerce in Japan are urging that this new tax on unlisted offshore stock investment trust securities be reduced to 10%. If they succeed, the new rate may be applied some time in the next year.

A further change under the March 2003 amendment is the reduction of the 20% tax previously imposed on redemption proceeds from investment trusts referred to above. This tax will be reduced for stock investment trusts to a temporary rate of 10%, also effective from January 1 this year. This lower rate will apply until March 31, 2008.

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