Requirements for investing in Japanese bonds
Tax status
With effect from 1 January 2016, income arising from fixed income held by book-entry systems are paid based on the tax status of the bondholder/beneficial owner who holds the debt securities on Record Date. The clean/dirty bond concept is no longer available in the market.
The exception are Samurai bonds, regardless of their position (that is, physical, registered and book-entry form). Foreign investors are not subject to withholding tax on income paid by Samurai bonds. Therefore, income for positions held by certified accounts (that is, the account owner issues an One-Time Certificate for non-residents) are always paid in full.
CBL, as the QFI, does not offer tax-exempt services for convertible bonds, but does so for corporate, municipal and Japanese government bonds.
Foreign Targeted Registered Obligations (FTRO)
Certain book-entry Samurai bonds issued by U.S. entities in 2007 and 2008 with a tenure of 10 years or less are designated as FTRO securities and are exempt from U.S. tax.
Certain book-entry Samurai bonds issued by U.S. entities are designated as "foreign-target registered obligation" securities (FTROs) or TEFRA securities (TEFRAs) and are currently not subjected to withholding tax in either Japan or the U.S. provided that no Japanese investors hold such bonds or IRS Form W-9 is submitted by U.S. investors in a timely manner.
Under JASDEC’s Business Guidelines for Handling U.S. Book-Entry Transfer Foreign Bonds, any beneficial owners of FTRO securities who are U.S. residents and hold the securities on interest payment date must submit Form W-9 to the paying agent (the Issuing agent) through Clearstream Banking and its depository.
Clients should send to Clearstream Banking a Swift MT599, Xact Web Portal or CreationOnline free-format message, for the attention of the tax department (OTL), confirming that they are mailing Form W-9 with relevant details (account, security details, payment date and holding and respective beneficial owner name). The certificate should be received by OTL within 20 days from the interest payment date.
For further information, please refer to our Market Taxation Guide for Japanese Samurai bonds.