Japan wants to attract foreign funds to the country by making taxation rules more transparent for foreign investors, Bloomberg reports.
Japan’s Financial Services Agency released a clarification of tax regulations, exempting managers of offshore investment funds from corporate tax provided they meet four criteria that prove their assets are managed at local discretion.
Taxation issues have discouraged hedge funds and other investors from setting up shop outside Japan even as they trade in its $4.3 trillion equities market, according to Bloomberg. Under Japanese law, any company permanently established in the market is subject to corporate tax of 40 percent, even if also taxed in the country where it’s based.
“The problem is over-regulation, ambiguous regulation and taxes,” Angus McKinnon, a senior partner at Tokyo-based hedge fund adviser Tozai Investment Advisory Ltd., told Bloomberg. “There is a conflict in the way funds are taxed offshore and onshore and that’s a problem.”
The Financial Services Agency said domestic managers of overseas funds cannot be tax-exempt if they fall under any of the following four criteria: investment decisions are made primarily offshore; half or more of the employees concurrently hold positions at the overseas fund; the local manager does not receive remuneration corresponding to investment income; the local manager isn’t allowed to diversify or advise other clients.
Regulators will meet next month with tax officials and the ministry of finance to further clarify the rules under which offshore investors are exempted, according to Bloomberg.