Japan: Some individual “substantial shareholders” no longer eligible for preferential tax rates

Effective, pay date

1 October 2011

individual investors holding more than 3% of outstanding shares for dividend income from listed shares are subject to the full withholding tax of 20% and fall under the “substantial shareholders” category.

The threshold was previously 5%. This tax rule is applicable to non-Japanese individual shareholders as well as Japanese individuals.

Customers are required to disclose the name and address of these "substantial shareholders" to Clearstream by the deadline stated within the pre-notification and must ensure that shares held by these individual investors are segregated.

Corporate entities

Corporate entities (both Japanese and non-Japanese) that hold 3% or more of the number of outstanding shares for dividend income from listed shares are still entitled to the preferential withholding rates and are eligible to receive the income with a 7% withholding rate applied or more if eligible based on the treaty between the investors country of residence and Japan.

Unlisted shares

Dividend income for unlisted shares will continue to be withheld at the 20% Japanese National Tax Rate.

Note: This ruling impacts Japanese equities and Japanese ADR income received after 30. September 2011. The responsibility of monitoring lies with the end-investor, as their assets can be held by multiple accounts with various custodians, in both omnibus and segregated structure.