Japan: Change in the current tax scheme on interests and redemption effective from January 2016

Effective

1 January 2016

redemption income on Discount Bonds will be subject to withholding tax as a result of the annual tax reform approved by the Diet in 2013.

Discount bonds include the following:

• Discount bonds without fixed interest payments;
• Principal or interest portions as a result of a split of Strips; and
• Deep discount bonds (interest-bearing bonds whose issue value is less than 90% of redemption value).

As a result of this, the forms for withholding tax exemption will be updated and this also impacts customers holding Japanese Government Bonds (JGBs), Japanese Corporate and Municipal Bonds and Discount Bonds.

Impact on customers

This new tax scheme will have the following impacts in Clearstream Banking¹ for customers holding Japanese Government Bonds (JGBs), Japanese Corporate and Municipal Bonds and Discount Bonds.

New official forms

The following forms will be updated

• Application Form for Withholding Tax Exemption;
• Application Form for Amendment concerning Withholding Tax Exemption;
• Notification Form for Withholding Tax Exemption (for Partnership or Trust only); and
• Notification Form for Amendment concerning Withholding Tax Exemption (for Partnership or Trust only).

For customers who are already  holding JGBs, Japanese Corporate and Municipal Bonds, Discount Bonds (proprietary assets or acting as intermediary having the QFI status)

The current version of the forms for withholding tax exemption already in place and sent before 31 December 2015 remain valid and have no expiry date.

The current forms for withholding tax exemption cover only interest income on JGBs and Japanese Corporate and Municipal Bonds.

In order for our customers to extend the tax exemption already granted by the current forms for withholding tax exemption to redemption income on Discount Bonds, our customers must send a SWIFT MT599, attention “SIT-Tax Service Singapore” to request the extension of tax exemption.

A SWIFT notification will be sent to our impacted customers to inform them about the procedure to follow and the template to be used to request the extension of tax exemption.

Deadlines

The deadline by which to send the SWIFT MT599 for customers holding JGBs, Japanese Corporate and Municipal Bonds, Discount Bonds as intermediary and having the QFI status is 14 December 2015 by 10:00 CET.

The deadline by which to send the SWIFT MT599 for customers holding JGBs, Japanese Corporate and Municipal Bonds, Discount Bonds as proprietary assets is 28 December 2015 by 10:00 CET.

For customers wanting to hold JGBs, Japanese Corporate and Municipal Bonds, Discount Bonds (proprietary assets or acting as intermediary having the QFI status) from 1 January 2016

For customers wanting to hold JGBs, Japanese Corporate and Municipal Bonds, Discount Bonds from 1 January 2016 and be exempted for interest and redemption incomes, are requested to submit the new versions of the forms for withholding tax exemption in addition to the other documents required.

We would like to notify customers that the new forms for withholding tax exemption, to be used by customers of Clearstream Banking for obtaining exemption on JGBs, Japanese Corporate and Municipal Bonds, Discount Bonds as from 1 January 2016, are now available (templates are attached below).

Important note:

Customers are kindly reminded that Clearstream Banking accepts only "clean" (tax-exempt) JGBs, Japanese Corporate and Municipal Bonds, Discount Bonds and it is therefore mandatory for our customers holding these bonds to provide us with the requested SWIFT MT599 to extent the tax exemption via Clearstream Banking.

Change in the validity of the forms

The previous versions of the forms for withholding tax exemption had no expiry date. Under the revised regulations, the forms for withholding tax exemption are valid for five years.

Further information

For further information, customers may contact the Clearstream Banking Tax Help Desk, Clearstream Banking Client Services or their Relationship Officer.

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1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500, and Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248.