Different forms of Japanese entity. Legal, tax and accounting implications of their use.
Recent years have seen the overhaul of the Japanese Corporate Law and a broadening of the range of entities which can carry out business in Japan.
Some of these new entities, such as the Japanese limited liability partnership, are intended to imitate similar existing foreign entity forms while others have been introduced with specific policy objectives in mind – for example the introduction of entities such as the ‘tokumei mokuteki kaisha’ or TMKs (similar to a US REIT) that are intended to promote securitisation and liquidity in the Japanese real estate market.
The Japanese corporate law was revised in 2005 with significant changes to the corporate governance of the familiar Japanese joint-stock company or ‘kabushiki kaisha’ and with the replacement of the Japanese limited company or ‘yugen kaishi’ with the ‘goudou gaishi’, or so called Japanese LLC. These last two forms are particularly interesting to U.S. Investors because they have limited liability but can be treated as a fiscally transparent for US tax purposes.
Japanese civil law recognises civil law partnerships or ‘nin’i kumiai’ similar to UK and US partnerships and the Japanese commercial law governs Japanese ‘silent partnerships’ or ‘tokumei kumiai’ which are similar to German ‘Stille Gessellschaft’.
Recent years have seen the introduction of new tax laws intended to address tax avoidance through the use of these entities in cross border investment into Japan.
Japan has also recently overhauled its trust law which governs a number of common Japanese collective investment schemes.
The Japanese Corporate Law itself defines four types of corporation, as shown in the diagram on this page. Other Japanese laws often cross refer to the Japanese Corporate Law when defining a specific corporate form for the law concerned.
The Japanese tax authorities have issued limited public information on how to distinguish between fiscally transparent entities and entities taxable as a corporation. Information issued to date is covered in this article.
Japan has a variety of partnership forms that allow flexibility in deal structuring.
The Japanese civil law partnership or ‘nin’i kumiai’ is similar in legal nature to US or UK partnerships. Articles address legal aspects of this form and its pass-through tax treatment.
The Japanese silent partnership form or ‘tokumei kumiai’, governed by the Japanese commercial code, has been used extensively in securitization and cross border investment transactions.
The Japanese limited liability partnership is a corporate form aimed at professional and similar firms modelled on the US LLP form.
The last decade or so the Japanese tax authorities have introduced a confusing range of entities intended to promote to securitization and liquidity in the real estate market. These articles discuss relevant tax, legal and accounting issues.
The Japanese ‘tokutei mokuteki kaisha‘ or ‘TMK’ is a Japanese special purpose corporate form commonly used for securitization of real estate.
The Japanese Investment Company is the corporate form commonly used for quoted to J-REIT style listed to real estate investment.
The Japanese trust form has historically been the main vehicle for Japanese collective investment schemes.
This section outlines Japanese trust taxation and the use of the form in real estate and other transactions.