Japan: New issuance of U.S. Samurai bonds covered by the U.S. Qualified Intermediary regime

Effective

1 January 2016

Samurai bonds issued by U.S. issuers will no longer be eligible to the Foreign-Targeted Registered Obligations (FTRO) simplified procedure. They will be handled through the existing U.S. Qualified Intermediary (QI) regime for the U.S. withholding and reporting aspects.

Background

Samurai bonds are yen-denominated securities issued by foreign issuers on the Japanese domestic market. Whenever the issuer is U.S., the income distributed will fall under U.S. tax legislation in addition to Japanese tax legislation.

In order to simplify the tax requirements applicable to such securities and upon conditions that specific requirements were met by the issuer, FTRO simplified procedure was established in order to allow investors to benefit from U.S. tax and exemption with limited certification requirements.

With the implementation of FATCA, such alternative certification procedure is no longer possible.

Impact on Customers

Consequently all U.S. Samurai bonds issued on or after 1 January 2016 will:

• no longer be exempt of U.S. tax and reporting through a simplified certification procedure, but will be subject to dual tax treatment (Japan and U.S.A.);
• in regards of U.S. legislation, will be subject to the standard certification and reporting requirements of the QI regime as described in our U.S.A. Market Taxation Guide at a glance;
• in regards to Japanese legislation, certification procedure remains unchanged.

In practice, the tax rate that will be withheld on the income distributed will be as follows should the investor not be duly certified:

• 30% when undocumented for U.S. tax purposes;
• 20.315% when undocumented for Japanese tax purposes;
• 50.315% when undocumented for both U.S. and Japanese tax purposes.

Tax regime and applicable procedures for all U.S. Samurai bonds issued before 1 January 2016, will remain unchanged.

The above is for information purposes only. We are expecting further clarifications and will provide more information as it becomes available.

Further information

For further information, customers may contact the Clearstream Banking¹ 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.