Starting a Business at Asian New Financial Center
In recent years, the Government of Japan has strongly supported the entry of foreign asset managers into Japan as a national policy and has implemented preferential treatment.
Although it is said that it is difficult for foreign companies to enter the Japanese market, however, the financial sector is more globalized than other industrial sectors. And it is a sector where profit can be easily secured relatively early. Therefore, with competitive service, good customer support, and a well-planned strategy, you will be successful in the Japanese market.
Tokyo, Osaka, and Fukuoka are working to attract international players to Japan. Below is a summary of the merits of entering Japan and the preferential treatment for foreign companies.
1) A considerably large market – the third-largest GDP in the world.
Japan and the United States are the only industrialized countries globally with populations of more than 100 million.
2) Good potential clients – lots of institutional investors
GPIF, Governmental financial institutions, Life Insurance companies, so called “Mega banks”, Investment Trusts, and many other institutional investors.
A Market with Well-developed Procedures
1) Easy entry: The Specially Permitted Businesses for Qualified Institutional Investors (SPBQII) and Investment Advisory and Agency Business does not require an office in Japan, making it easy to enter the market.
2) Quick Start: By applying The Specially Permitted Businesses for Qualified Institutional Investors (SPBQII) / Special Regulations for Overseas Investors , it is possible to immediately solicit investments from domestic institutional investors with a notification to relevant authorities only.
3) Scalability: It is possible to acquire the Investment Management Business and/or the Type II Financial Instruments Business to provide asset management services for retail clients after starting investment management services for professionals.
Japan as an Asset Management Base
Tax advantages: If the individual fund manager receives the income as GP in the form of a so-called preferential profit-sharing arrangement, the effective income tax rate is 20.42%.
Easy Fund set up: The Special Permitted Business for Qualified Institutional Investors (SPBQII) and special permitted business for overseas investors allow you to set up funds mainly for overseas investors and domestic institutional investors in a short time.
Transparent and efficient regulation: Japan’s administrative structure is fair with very little fraud and corruption.
Regulatory website is increasingly written in English, and the ONLINE process enables asset management businesses to carry out in English.
New Regulations and Incentives
For several years now, the Japanese Government has been strongly supporting the entry of foreign asset managers into Japan as a national policy. Over this year and next, the Japanese authorities will offer the following incentives to foreign asset managers.
Tax incentives
| Before | After | |
|---|---|---|
| Performance-Based Salary (to be enforced 2022) | Performance-Based salaries for Officers (Board of directors) are NOT treated as company expenses. Therefore, performance-Based salaries for officers are subject to double taxation of corporate tax (30%) and personal income tax (0-55%). It makes it difficult for Fund Managers to become officers. | Even performance-Based salaries for Officers can be treated as company expenses. As a result, the double taxation issue is cleared and only charges personal income tax (0-55%). It will become easier for Officers to receive Performance-Based salaries as Fund Manager. |
| Inheritance Tax (Enforced) | If the foreigner lives in Japan for more than 10 years, Inheritance Tax (0-55%) is imposed on all property worldwide. | For foreigners residing in Japan for work, Inheritance Tax will not be imposed for the properties outside Japan regardless of the period of residence in Japan. |
| Personal Income Tax (Enforced) | The treatment of the preferred profit distribution received by individual Fund Managers as a GP was unclear. There is a risk that subjects to taxed comprehensively (0-55%). | It is confirmed that the preferred profit distribution received by individual Fund Managers as a GP is taxed separately (20.42%). Therefore, the tax rate became low drastically (maximum tax rate 55% → 20.42%) for higher income. |
Start of the new system
Asset Managers for overseas professional investors are
(1) Special Permitted Business during Transition Period: Asset Managers who have license/permission from overseas authorities and have a track record of managing overseas customer funds (only overseas funds management) can carry out the following business for 5 years (limited period).
Discretionary investment business
Investment trust consignment and solicitation business
Recruitment and management of partnership-type funds
(2) Special Permitted Business for Overseas Investors, etc.: Asset Managers who have (mainly) overseas professional investors can solicit and manage partnership-type funds by notification to relevant authorities.
⇒ However, it is necessary to set up an office in Japan.
⇒ Click here for detail.
| Before | After | |
|---|---|---|
| Special Permitted Business during Transition Period | Except for small-group funds for Professional Investor, Overseas Asset Managers had to undergo screening for about 6 to 12 months to engage in financial instruments business in Japan. Besides, there was no preferential treatment even if the asset manager had an overseas license. It was not easy for foreign Asset Manager to move their operation to Japan. | The overseas Financial Company (holding overseas’ license) can continue to carry out existing operations with overseas customers in Japan by notification only upon setting up an office in Japan (limited to 5-years). ⇒ This system is a temporary measure mainly for financial companies that move from Hong Kong (or other places) to Japan as they can’t solicit Japanese customers. The authorities assume that it makes to move to Japan quickly, then a formal license application will be followed. |
| Special Permitted Business for Overseas Qualified Institutional Investors, etc. | Except for small-group funds for professionals, if Fund Managers want to carry out business in Japan/solicit domestic clients, they have to undergo screening for about 6 to 12 months even if they manage the overseas clients’ assets. The small-group fund for professionals can be quickly established, but it is limited to private placements for small-group (1 or more professionals, 49 or fewer semi-professionals). (* Overseas Financial Companies are judged by the number of investors living in Japan) | The Asset Managers, whose customers are mainly overseas professional investors, can solicit and manage partnership-type funds by notification in Japan upon setting up an office in Japan. Furthermore, it is permitted to solicit related parties of domestic qualified institutional investors and investment managers within less than 50% investment amount ratio. Moreover, investors are limited by attributes only, and no restriction on the number of investors. |
English language support for regulatory supervision
| Before | After |
|---|---|
| Most administrative procedures are carried out in Japanese. Besides, local staff who understand Japanese were essential as submissions, regulatory supervision, and inspections after registration in Japanese. In addition, various documents are required and submit in paper form. | It has become possible for certain Overseas Asset Managers to carry out registration procedures in English and subsequent business operations in English. In addition, most post-registration procedures are not required chop and digitized. |
Special feature: Promotion of entry of overseas asset managers
The Financial Services Agency is encouraging the entry of overseas asset managers, and else, with the aim of establishing Japan’s position as an international financial center open to the world.
Full-scale regulatory reforms are underway, such as tax reform, the establishment of The special business for overseas investors and The special business for the transition period, and simplification of procedures.
