According to a Nikkei Newspaper article, the Japanese FSA has finalized their tax reform request for FY 2007. The FSA draft has not been officially released yet, however the tax relief for stock investment and the introduction of the new tax for Triangle Merger and Acquisition schemes may have some impact on foreign investors.
The tax relief for stock investments was introduced in 2003 with a 5 years expiry date. The securities industries and the FSA have asked for the tax relief to be retained as it is, in order to further promote stock investments in Japan. However the Japanese Ministry of Finance thinks that the tax rates should be increased from the current 10% to 20% “because the Japanese economy and stock markets have rebounded,” says a spokesman for Mizuho Bank.
Foreign investors are exempt from capital gains tax of stock sale if they have no permanent entity in Japan. But Japanese investors have to pay a 10% tax rate, which is temporarily reduced from 20%. If the extension request beyond December 31, 2007 is denied Japanese investors will be assessed a 20% capital gain tax.
Without extension, Japanese investors would be taxed at a rate of 20% for stock dividends, which was previously, at 15% for income tax and a 5% local tax. The current scheme is reduced to a 10% tax rate, 7% for income tax and 3% for local tax, which is more favorable when compared to the coupon income tax for deposits and Bonds. Foreign investors currently pay tax a tax rate of 7% for stock dividend, but if the tax relief expires on March 31, 2008, then foreign investors will be assessed at a 15% tax rate from that time.