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日本の税務情報を英語で書くブログ by みなと国際会計事務所

Tax Saving Investment Vehicle to Japanese Property – TK or Tokumei Kumiai

time 2016/06/15

A Tokumei Kumiai, or TK, is widely used as an investment vehicle into the Japanese property market.

The beauty is the lowest tax rate in total, compared to the normal corporate income tax and withholding tax on dividends.
In a TK, investor dividends are regarded as a deductible expense, which is subject to Japanese withholding tax of 20.42%. But because the Japanese corporate income tax is much higher (approximately 38%), this 20.42% is much better.

TK is a legal entity which is similar to a partnership. You will have one active partner and one or more investor partner(s). The active investor is called the Principle and has to execute its business operation. Investor partners are called Anonymous Partners. They should be passive and should not have control or decision power over its operation.

The Principle is supposed to have a minor interest of investment (say 5%) at least.

The dividends paid to investor partners are deductible before corporate income tax.

This is a great characteristic of the structure. For example, if you buy a property in Japan and sell it at profit some time later, in the normal corporate scheme its capital gain is subject to 38% or so corporate tax rate. Investors need to bear the tax first before they receive its dividends.

In TK, it is opposite. All the dividends are regarded as expense, meaning the corporate tax is only taxable to the remaining profit after all the dividends are paid. Dividends from TK are subject to 20.42% withholding tax, which I think is much better.

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