The FY2010 Tax Reform's effects on the regulations concerning the real estate securitisation business | Practical Law

The FY2010 Tax Reform's effects on the regulations concerning the real estate securitisation business | Practical Law

This article is part of the PLC Global Finance April 2010 e-mail update for Japan.

The FY2010 Tax Reform's effects on the regulations concerning the real estate securitisation business

by Atsumi & Partners
Published on 04 May 2010 • Japan
This article is part of the PLC Global Finance April 2010 e-mail update for Japan.
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On 1 April 2010, a set of revised tax laws concerning the FY 2010 Tax Reform, including some amendments and additions to the Act on Special Measures Concerning Taxation came into effect. Three new Special Taxation Measures (STMs) relevant to foreign investors in real property securitisations in Japan are of particular interest and the reforms affecting real estate securitisation are outlined here.
On 1 April 2010, a set of revised tax laws concerning FY 2010 Tax Reform, including some amendments and additions to the Act on Special Measures Concerning Taxation (Act No. 26 of 1957), came into effect.
Three new Special Taxation Measures (STMs) relevant to foreign investors in real property securitisations in Japan are of particular interest. With regard to the STMs themselves, a new Law for Improving Transparency of Special Taxation Measures came into effect at the same time.
Further, it has recently been reported that the abolition or reduction of STMs is being discussed by the government's Tax Commission with a view to reducing the burden of Japanese corporate tax.

Outline of FY 2010 Tax Reform regarding real estate securitisation

Abolition of one of the pass-through requirements for TMK. TMKs (Tokutei Mokuteki Kaisya）established under the Act on the Securitisation of Assets (Act No.105 of 1998) are a type of special purpose vehicle used for securitisation transactions in Japan.
The 2010 Tax Reform has abolished one of the requirements for transparency in TMKs for tax purposes.
Before the FY 2010 Tax Reforms, a TMK was required to state in asset liquidation plans that 50% or more of the principal amount of bonds issued by it would be offered in Japan.
Exclusion from taxation of book-entry transfer bonds issued by TMKs. This exclusion system is newly established. In particular, individual income tax or corporation tax will not be imposed for any interest or profit from redemption to be received by a foreign resident or a foreign corporation meeting certain requirements with regard to book-entry transfer bonds issued by Japanese issuers on or before 31 March 2013.
Additionally, this:
  • Will not apply to any interest or profit from redemption to be received by any specially-related non-resident or corporation which has a special relationship with the issuer of such bonds.
  • Will apply to interest calculation periods starting on or after 1 June 2010.
The above applies to bonds issued by TMKs and J-REITs as well.
The tax reforms described under the above subheadings are expected to encourage foreign investment in the Japanese real estate markets.
Amendment to registration licence tax applied to TMK’s acquisition. Currently registration and licence tax are possible at a reduced tax rate (0.8% of acquisition cost, originally 2%) with respect to a registration of transfer of the ownership where TMKs or J-REITs acquire real property. The 2010 tax reforms have excluded warehouses and their premises from the application of these reduced taxes (normal tax rates apply).
In addition, the 2010 tax reforms have amended such reduced tax rate as below:
  • From 1 April 2010 to 31 March 2011: 0.8%.
  • From 1 April 2011 to 31 March 2012: 1.1%.
  • From 1 April 2012 to 31 March 2013: 1.3%.