 |
TOKYO
REAL ESTATE MARKET REPORT
VOL.12
Taxation of Individual
Investors in J-REIT June
2002
| Issues
of J-REIT Taxation for
Individual Investors |
Current Situations
and Problems
| Five
J-REITs are listed on
the Tokyo Stock Exchange.
Their total assets are
about 632.3 billion yen.
(See Appendix ; table
of listed J-REIT)
Dividend yields of the
listed J-REITs are 5%
to 7%. This is a very
high return compared to
other investment products
in Japan. |
 |
| J-REIT
has not
been popular
among Japanese individual
investors.
Ex. NBF has only approx.
15% individual investors. |
REASONS
One of the reasons of
this unpopularity is
the complicated way
individual’s are currently
being taxed. |
|
On this report,
we are looking over some
taxation issues for individual
investors |
Note:
The other issues beside
individual taxation will
be reported on our following
Market Reports. |
|
| Issues_1:
Taxation of Distributions |
Japanese individuals
are not accustomed to
complex income tax returns,
and this has discouraged
them from investing in
J-REITs.
If distribution
exceeds more than 50,000
yen, the investor has
to fill out a tax return.
J-REIT distributions are
currently taxed in the
same way as stocks, which
are less dividend-oriented.
A withholding tax of 20%
is assessed on single
distributions of up to
50,000 yen per share,
and this completes the
tax obligation for such
distributions.
However, distributions
of more than 50,000 yen
must be declared on the
investor’s income tax
return.
Dividend Taxation
on Distributions
| Dividend
Category |
Amount
of Distribution Per Share |
Income
Tax |
Inhabitant
Tax |
| Type
of Taxation |
Tax
Withholding
Rate |
Income
Tax Return |
| Small |
Up
to 50,000 yen |
Not declarable |
20% |
Not required |
Not
taxable |
| Aggregate
taxation |
20% |
Required |
| Medium |
More
than 50,000 yen and less
than 250,000 yen |
Separate
tax withholding |
35% |
Not required |
Aggregate
taxation |
| Aggregate
taxation |
20% |
Required |
| Large |
250,000
yen and up |
Aggregate
taxation |
20% |
Required |
Aggregate
taxation |
Individual investors
are taxed on distributions
from listed J-REITs in
the same manner as stocks.
Distributions are treated
as dividend income and
generally handled under
aggregate taxation. Like
stocks, an exception applies
to small dividends, which
do not need to be declared.
However, dividend deduction
does not apply. |
| Issues_2:
Taxation of Transfer Gains
|
From
2003 - In case of a J-REIT
transferal, an Investor
has to file a tax return
Individual investors can
opt for a separate tax
withholding or a separate
income tax declaration
concerning transfer gains
from listed J-REITs. It
is similar for a stock
transferal.
Tax laws with regards
to securities reformed
radically in November
2001. After the reform,
measures were approved
to reduce taxes, in the
same way as listed stocks.
However, separate tax
withholding will be abolished
as of December 31, 2002.
Separate income tax declaration
will become the only option.
Major Tax Reforms
Related to Securities
(November 2001 revision)
 |
J-REIT
is able to issue distributions
in excess of profits (including
amounts corresponding
to depreciation) as a
capital refund.
However, under current
Japanese tax laws, individual
investors are taxed on
a very complicated manner
concerning capital refunds.
|
|
At present (as of June
14, 2002) the general
approach of J-REITs is
to avoid any distributions
in excess of profits.
|
|
This makes it impossible
to follow the lead of
U.S. REITs in adopting
a flexible approach to
dividends. |
|
| Our
Challenges for Tax Reform |
To stimulate interest
in J-REIT investments,
Tokyo Tatemono
has been making various
efforts to change the
view points of the way
the Japanese government
treats J-REITs accounts.
Especially for J-REITs
individual investors,
we believe the following
points are important.
Complicated taxation
act should be simplified
The taxation of capital
refunds should be revised
The limit for small dividends,
currently undeclared,
should be raised to reduce
the tax burden on dividends.
We are negotiating with
the Japanese government
to deduct a property transaction
cost for J-REIT funds,
and introduce UP-REIT
system. We would like
to report these issues
on following market report.
|
| Appendix:
Table of listed J-REIT |
| At present, five
J-REITs are listed on
the Tokyo Stock Exchange.
Their total assets are
about 632.3 billion yen.
To increase market volume,
it will be necessary to
mobilize individual investors,
who represent approximately
1,400 trillion yen in
financial assets.
Comparison
of J-REITs (As of May
31, 2002)
| Listed
investment corporation |
Operating
Company (Major investors
in parentheses) |
Assets |
Date
listed |
| Nippon Building Fund
Inc. (NBF) |
Nippon Building Fund
Management (Mitsui Fudosan,
Sumitomo Life Insurance,
Chuo Mitsui Trust & Banking,
etc.) |
Approximately 245.5
billion yen |
9/10/2001 |
| Japan
Real Estate Investment
Corporation (JRE) |
Japan
Real Estate Asset Management
(Mitsuibishi Estate, Tokyo
Fire & Marine Insurance,
Daiichi Life Insurance,
Mitsui & Co., Ltd.) |
Approximately
154.2 billion yen |
9/10/2001 |
| Japan Retail Fund
Investment Corporation
(NRF) |
Mitsubishi Corp. and
UBS Realty (Mitsubishi
Corp., UBS) |
Approximately 40.9
billion yen |
3/12/2002 |
| ORIX J-REIT
Inc. |
Orix Asset
Management (Orix) |
Approximately
99.6 billion yen |
6/12/2002
(scheduled) |
| Japan Prime Realty
Investment Corporation
(JPR) |
Tokyo Realty Investment
Management (Tokyo Tatemono,
Yasuda Life Insurance,
Taisei Corp., Yasuda Real
Estate, Yasuda Fire &
Marine Insurance) |
Approximately 92.1
billion yen |
6/14/2002 (scheduled) |
| Total |
Approximately
632.3 billion yen |
|
(As
of December 31, 2001) |
| Total
market value of listed
REITs in USA (182 companies)
according to a survey
by NAREIT (based on $1=125
yen) |
Approximately
20 trillion yen |
|
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