We have answered a number of commonly asked questions below

It is possible if the funds are used for purposes related to the real estate purchased through the SBIST scheme, such as management fees, repair costs, or renovation expenses. However, we may refuse to make the transfer after receiving details. As we are not currently investing in minpaku properties themselves, we will not direct trust funds to purposes other than those initially specified.

Withdrawals are possible. We will refund the remaining amount after deducting the withholding tax on profits. Generally, this will be 20.42%, or if a tax treaty applies, 10% or 15%.

Yes, it is possible to include your accountant as an authorized instructing party.

Yes, it also applies to residents of Mainland China, but only for those who hold assets outside of Mainland China and Hong Kong. This is due to the legal restrictions in Mainland China and Hong Kong on transferring assets abroad for real estate purchases.

Yes. As long as the company is actively conducting business outside of Japan, it is eligible to invest through the scheme, even if it is owned by Japanese individuals. However, shell companies or entities established solely for tax reduction purposes are excluded from the reduced tax rate under the Multilateral Instrument (MLI) to prevent Base Erosion and Profit Shifting (BEPS).

If an overseas investor is a resident in a country that has a tax treaty with Japan, it is likely that their investment through a specified beneficial interest security-issuing trust (SBIST) should not lead to the Japanese tax authorities determining that they have a permanent establishment in Japan simply because of their investment.

A permanent establishment is defined under Japanese tax law (Article 2(12-19) of the Corporate Tax Law) in the same way as that stipulated under the applicable tax treaties, and these tax treaties ordinarily provide an independent agent clause (e.g., Article 5(6) of the Hong Kong–Japan tax treaty), so the mere existence of an independent agent should not give rise to a PE determination.

The trustee should qualify as an independent agent within the meaning of an applicable treaty because of its legal independence, its economic independence, and the fact that it is operating in the ordinary course of business.

So, overseas investors should consider investing through a SBIST from a country that has a tax treaty with Japan.

The principal purpose test (PPT) is a standard that was published in the OECD’s 2015 Final Report on BEPS Action 6, and it is not yet something that has been applied widely in Japan. There is currently no publicly available precedent that shows treaty benefits were denied by the Japanese tax authorities specifically based on the application of the PPT.

Having said that, Japan is an OECD country that, in principle, respects the OECD’s Commentaries on the Articles of the Model Tax Convention, which, in effect, note that the treaty benefits should not be denied if the granting of benefits is in accordance with the “object and purpose” of the treaty. This generally means that, if the investor is a company engaged in business activities in its home country, then it is likely that the treaty benefit will be provided.

Once a trust has qualified as a specified beneficial interest security-issuing trust (SBIST) — as stipulated under Article 2(29)(c) of the Corporate Tax Law of Japan — Japanese real estate income and capital gains can be reclassified into dividend income. For a trust to qualify as a SBIST, all the following requirements need to be met:

1. The trustee must obtain approval from a competent tax office
2. The trust agreement with a beneficiary must include a provision that stipulates the ratio of non-distributed profits held by the trustee will be equal to or lower than 2.5% of the amount of the trust principal
3. The profit distribution of the trust will be made every year in accordance with the requirement set under b. above
4. The length of the calculation period will be set at one year or less
5. The trust will never have qualified as a “trust having no beneficiaries” at any time in the past

CastGlobal Trust has met all these requirements and is qualified as a SBIST.

It is acceptable to handle this solely through accounting entries.

Generally speaking, Japanese banks and trusts historically have not been so good at handling cross-border products, partly because there has not been the need for them to expand their businesses abroad as they have had so much business domestically.

None of Japan’s three largest banks have overseas subsidiaries that focus on local retail trust businesses, except for their Luxembourg subsidiaries, which typically provide a platform for investment funds marketed solely to Japanese retail investors.