[ESTABLISHING A BUSINESS ENTITY IN JAPAN]
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5.2 Any capitalization obligations In Japan, there are thin capitalization rules. Where a subsidiary company in Japan raises funds from its foreign parent company, if the tax rate in Japan is higher, the foreign parent company tends to prefer debt (i.e., loan(s) from the parent company) to equity (i.e., additional investment by the parent company), as interest on debt is tax deductible. As such, there are regulations (known as thin capitalization rules) which stipulate if the debt is more than 3 times the capital of the Japan subsidiary company, then the interest on the portion of the debt that exceeds 3 times the capital shall not be tax deductible. 5.3 Any special business or investment visa issues A “Business Manager” visa (status of residence) is available for company directors, branch managers, and others who engage in activities to determine important matters regarding the operation of a business, the execution of a business, or the auditing of a business. Some local governments have established special programs for encouraging foreign investors to support business startup activities. For instance, in the case of Yokohama City, if a foreign investor plans to start a business in Yokohama City and the type of business is related to innovative technology and other activities, and fulfills other requirements, the investor will be granted a “Specially Designated Activities” status of residence for a maximum period of one year; the investor then can use this maximum one
year period to engage in activities to start the applied-for business. After this special one-year period, the investor who has managed the start of the business can apply for a “Business Manager” visa. 5.4 Any restrictions on remitting funds out of the jurisdictions (withholdings, etc.) There are no particular restrictions in Japan on remitting funds out of Japan. Provided, however, a Japanese company is, in principle, required to deduct and pay withholding tax on its dividends. The tax rate is reduced if the tax treaty between the home county and Japan stipulates a reduced tax rate for dividends.
ILN Corporate Group – Establishing a Business Entity Series
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