Establishing a PEF in Asia often takes the form of LPS (or a limited liability partnership). The establishment of an LLP in Japan is only possible after an agreement between its managers is concluded.
Investment funds must have:
- 1 general partner;
- 1 limited partner.
Management of investment funds’ overall activities & responsibility for their liabilities rests with general partners. Unlike general partners, limited partners aren’t allowed to manage their activities & bear responsibility for their liabilities only to the extent of their capital contributions. Fund managers intending to register a PEF in the state of Japan are required to conduct their funds’ activities with due regard for their partners.
If investment funds intend to purchase stocks, assets or securities issued by non-Japanese entities, they must ensure that their amount doesn’t exceed fifty percent of their partners’ total capital contribution. Acquiring shares & managing funds’ assets in the state of Japan are the two activities governed by FIEA.
Investors seeking to purchase shares of Japanese funds are required to comply with FIEA. Providing more than fifty percent of an LPS’s assets are invested in publicly offered securities, their issuers must register securities in the state of Japan & come up with a prospectus prior to making an offer. Also, if a general partner of an LPS wishes to attract foreign investors on their own initiative, they are required to register a company in Japan.
Establishing an LPS in Japan: Investors
If an entity licensed to trade in Type 2 financial instruments wishes to get investors to purchase a partnership’s shares, it mustn’t require them to comply with any qualification criteria. However, if a general partner wants to attract investors by making a private placement (as per Art. 63), they must require them to ensure compliance with qualification criteria.
General partners wishing to register an investment fund in the state of Japan must operate an investment entity whose assets (no less than fifty percent of them) are invested in derivatives or securities. That said, general partners may bypass that requirement by:
- delegating all powers to manage a registered company’s investment business;
- notifying financial regulators of engagement in activities related to investment management.
Register a Japanese Investment: Taxation
Pursuant to Japanese legislation, partnerships aren’t required to pay taxes. Hence, profits & losses that arise from the investment activities of partnerships may be distributed among investors without being taxed.
Foreign investors must pay income & corporate taxes on profits earned in the state of Japan. How much an investor has to pay depends on whether they have a permanent establishment in Japan & its type. Having a registered establishment means investing via an LLP & being involved in business activities in the state of Japan.
Considering establishing a fund in Japan? Need advice on fund regulation in Japan? Why not contact IQ Decision UK?