Securities Issuance and Trading

Japanese law stipulates that stock exchanges establish their own rules for listing securities. The links below are for the listing procedure of the Tokyo Stock Exchange (TSE) for Japanese Government Bonds (JGBs) and non-JGBs.

Registration and Licensing

Financial institutions, securities companies, and banks must register with the Financial Services Agency (FSA).

Recent amendments to the Law on Securitization of Specified Assets by Special Purpose Companies allow for a change to the procedures for establishing a special purpose company for the securitization of assets. Once implemented, the procedures will be simplified from the current registration system to a notification system with the Ministry of Trade and Industry (MITI) and the Ministry of Finance (MOF). An unofficial and provisional MOF translation of the amendment’s outline is provided at the website linked below.

Valuation Guidelines

Accounting Standards

The Business Accounting Council establishes accounting and auditing standards in Japan. It publishes the Accounting Standards for Financial Instruments (ASFI), which provides standards for mark-to-market accounting and market price valuation of securities. The ASFI requires debt securities holdings to be classified by purpose of holding, with each classification using a specified valuation method. Securities that are held-for-trading are securities for the purpose of gaining profit through fluctuation of market value, and are recorded in the balance sheet at current market values. Profit-and-loss are recorded in income statements. Held-to-maturity securities are redeemed at face value and are presented on balance sheets at acquisition cost. The compulsory devaluation method applies to this type of holding when the market price has fallen significantly. Other securities holdings include those held for lengthy periods for business purposes that do not fall under the categories above. These securities are valued and presented on balance sheets at current market prices. Profit and loss are presented under shareholders' equity on balance sheets under ''balance of revaluation of other securities holdings.''

Investment Funds

Mutual funds must submit an official report to the Financial Services Agency (FSA), using mark-to-market practices, and furnish fund investors with the report. The reporting frequency and timing are based on characteristics of the fund such as maturity and currency, among other factors. Valuation is based on market prices either from an exchange or the over-the-counter (OTC) market. Details of the regulation can be obtained through the Investment Trust Association. However, no English translation is currently available.

Capital Adequacy Regulations

As members of G10 markets, banks in Japan must satisfy risk-based capital requirements that involve mark-to-market practices to measure market risk. A revised rule for the new capital adequacy framework following Basel II standards took effect at the end of the 2006 fiscal year. Details of the changes are outlined at the website linked below.

Taxation

Japan treats income tax on individuals and corporations separately, following the Income Tax Law and Corporate Tax Law, respectively.

A matrix of the taxation for different types of bonds is provided below.


Type of Bonds Resident Investors Nonresident Investors
Interest Income Capital Gains Interest Income Capital Gains
Government Bonds [interest-bearing bonds: excluding Treasury Bills (TBs), Financing Bills (FBs), and Separate Trading of Registered Interest and Principal of Securities (STRIPS)] Individual: Separate WHT (15% income tax + 5% local tax)

Corporate: WHT (15% income tax + 5% local tax); in addition, corporate tax is levied (on profits included in revenue); withholding tax can be deducted from corporate tax according to the holding period.
Individual: Tax-exempt (for low-coupon bonds, aggregate income tax is levied on its capital gain.)

Corporate: Corporate tax (inclusion in revenue)
Individual: Tax-exempt (provided that non-resident tax-exempt system for JGBs interest, etc., shall be applied.) (only the period when the individual holds the bonds)

Corporate: Tax-exempt (provided that non-resident tax-exempt system for JGBs interest, etc., shall be applied.) (only the period when the company holds the bonds)
Individual: No tax

Corporate: No tax
Quasi Government Bonds (government sponsored bonds and fiscal investment and loan program agency bonds) Individual: Separate WHT (15% income tax + 5% local tax)

Corporate: WHT (15% income tax + 5% local tax); in addition, corporate tax is levied (on profits included in revenue); withholding tax can be deducted from corporate tax according to the holding period.
Individual: Tax-exempt (for low-coupon bonds, aggregate income tax is levied on its capital gain.)

Corporate: Corporate tax (inclusion in revenue)
Individual: Separate WHT (15% income tax)

Corporate: Separate WHT (15% income tax); Corporate tax-exempt
Individual: No tax

Corporate: No tax
Municipal Bonds Individual: Separate WHT (15% income tax + 5% local tax)

Corporate: WHT (15% income tax + 5% local tax); in addition, corporate tax is levied (on profits included in revenue); withholding tax can be deducted from corporate tax according to the holding period.
Individual: Tax-exempt (for low-coupon bonds, aggregate income tax is levied on its capital gain.)

Corporate: Corporate tax (inclusion in revenue)
Individual: Separate WHT (15% income tax)

Corporate: Separate WHT (15% income tax); Corporate tax-exempt
Individual: No tax

Corporate: No tax
Corporate Bonds Individual: Separate WHT (15% income tax + 5% local tax)

Corporate: WHT (15% income tax + 5% local tax); in addition, corporate tax is levied (on profits included in revenue); withholding tax can be deducted from corporate tax according to the holding period.
Individual: Tax-exempt (for low-coupon bonds, aggregate income tax is levied on its capital gain.)

Corporate: Corporate tax (inclusion in revenue)
Individual: Separate WHT (15% income tax)

Corporate: Separate WHT (15% income tax); Corporate tax-exempt
Individual: No tax

Corporate: No tax
Supranational Bonds Individual: Aggregate income tax (No WHT)

Corporate: Corporate tax (inclusion in revenue) (No WHT)
Individual: Tax-exempt

Corporate: Corporate tax (inclusion in revenue)
Individual: No tax

Corporate: No tax
Individual: No tax

Corporate: No tax

WHT : Withholding Tax

Notes:

1. The table above does not include information about tax reduction and/or exemption approved by tax treaties.

2. "Corporate" in Resident Investors columns excludes the stipulated companies that are allowed to undertake special tax treatment by laws and regulations.

3. "Supranational Bonds" only include Samurai bonds, which are the bonds issued in Japan by international organizations that are exempted from duty to withhold tax, such as Asian Development Bank, International Bank for Reconstruction and Development, Inter-American Development Bank, African Development Bank, and International Finance Corporation.

4. Non-resident tax-exempt system for JGBs interest, etc., is a system that non-resident investors stipulated in Article 5-2 of Special Taxation Measures Law are exempt from taxation on interest and profit from redemption of JGBs if they follow the required procedures.

5. "No tax" means Japanese tax authorities do not have authority to impose tax on such income because there is no provision prescribing tax on the said income.

6. The table above explains the general tax treatment for each category of bonds. Individual bonds may be treated in different ways.

7. The table above and these notes are not official views of Japanese tax authorities or the Japan Securities Dealers Association.


Sources: Ministry of Finance and Japan Securities Dealers Association