The Liberal Democratic Party, the ruling party of the Japanese diet, has agreed the likely outline of the tax reform scheduled for agreement by the diet in late March next year.
The restriction on holdings of short-term Japanese Government Bonds will be abolished. Currently, they can be held tax-exempt only if non-resident investors hold them with a local custodian. Now it is planned to extend the tax-exemption to investors who hold assets through a Qualified Foreign Intermediary (QFI), opening the path for foreign investors to hold them through a global custodian. This will apply to assets acquired after 1 April 2004, and will be restricted to sovereign and foreign corporation investors. Qualified foreign investment trusts are excluded.
It has also been decided that the exemption from tax of interest and discounts on foreign bonds issued by Japanese companies abroad will be extended for another two years, and that capital gains on redemption will not be taxed at source at the time of issuance on Samurai bonds – in other words, on Yen-denominated bonds issued in Japan by foreign borrowers.