The ruling party in Japan has unveiled a loosening and simplification of the tax and regulatory treatment of foreign investment in JGBs. The changes, which have yet to be finalized, are expected to become effective in April 2005.
First, the range of investors eligible to buy inflation-Indexed JGBs, STRIP bonds and short term government paper will be expanded to include foreign corporations, and foreign corporations who are trustees of qualified foreign securities investment trusts.
Secondly, the notification procedures that are required for qualified foreign intermediaries (QFI) who want to hold JGBs and short term Japanese government paper on behalf of clients will be simplified. Currently, each time a QFI holds JGBs or short term securities notification has to be sent to the sub-custodian on a real time basis. This requirement is being eased, most probably to quarterly reporting only. “QFIs will still need to record the book-keeping and holding period of JGBs on behalf of each beneficial owner,” notes a spokesman for Bank of Tokyo Mitsubishi in Tokyo.
Thirdly, the documentation procedures necessary to hold STRIPS bonds and short term Japanese government paper are being simplified. Currently, when a beneficial owner holds these securities for the first time, the Application Form for Tax Exemption or Bill of Holdings (“Kokuchi-sho”) both have to be submitted. In future, a single “Kokuchi-sho” document will suffice.
Fourthly, US investors will no longer have to submit Form 6166 (Certificate of Residence) to each tax reclaim. Instead, they can lodge it once with their sub-custodian or trust bank.
The Bank of Tokyo Mitsubishi spokesman warns that the changes are not yet finalized, and are still subject to further discussion among banks, registrars, and authorities.