The account of a holding company in Japan: banking, dividends and tax

Holding company in Japan: pure holdings allowed since 1997

A holding company in Japan owns participations, often through a kabushiki kaisha, and centralises dividends, intragroup loans and capital injections under the scrutiny of Japanese banks and tax authorities. Pure holding companies, known as mochikabu kaisha, have been allowed since the 1997 reform of the Antimonopoly Act, and many groups have reorganised under a listed holding, so the structure is familiar to the country's banks.

The 1997 reform of the Antimonopoly Act lifted the ban on pure holding companies, known as mochikabu kaisha. Many Japanese groups have since reorganised under a listed holding, making the structure familiar to the country’s banks.

Exemption for dividends from Japanese subsidiaries

Dividends from a Japanese subsidiary held at one third or more are in principle excluded from the holding’s taxable income, with smaller stakes getting a partial exclusion. The account should let each receipt be traced to the paying company.

Foreign dividends: the 95 percent exclusion

A Japanese holding owning at least 25 percent of a foreign subsidiary for six months may exclude 95 percent of dividends received, a threshold sometimes lowered by treaty. The bank then asks for evidence of ownership and foreign withholding.

Dividends paid to a French parent: Japanese withholding and the treaty

A Japanese holding paying dividends to a French parent suffers Japanese withholding, reduced by the France-Japan tax treaty subject to ownership conditions. The treaty relief application form must be filed with the payer before payment.

The group tax regime introduced in 2022

Since April 2022 the group notification system has replaced the former tax consolidation, with each company computing its own tax while offsetting profits and losses. Each entity keeps separate bank accounts, and intragroup transfers must be documented.

Intragroup loans, transfer pricing and thin capitalisation

Loans between the holding and its Japanese or foreign subsidiaries must carry an arm’s length rate. Japan also applies thin capitalisation and interest limitation rules on related-party payments, which banks review when financing.

Japanese CFC rules and low-taxed subsidiaries

A Japanese holding controlling subsidiaries in low-tax countries may have their passive income added back in Japan under the controlled foreign company regime. The account should reflect a distribution policy consistent with these rules.

Beneficial owner list and bank identification

Since 2022 the Legal Affairs Bureau issues, on request, a certified list of beneficial owners of a kabushiki kaisha. Banks may use it but still perform their own identification of the individuals who control the holding.

Holding company bank account in Japan: what MUFG Bank reviews for an investment holding

Faced with a holding that has no trading activity, MUFG Bank seeks to understand the stakes held, the dividend calendar and governance. A real board, audited accounts and a Japanese head office reassure more than a registered-agent address.

Tax residence of the holding and duties in France

A holding registered in Japan but managed from France may see its tax residence questioned. French-resident shareholders report their Japanese accounts on Form 3916, and Japan exchanges financial account information under CRS.

How to open a bank account for a holding company in Japan

For a holding company in Japan, opening an account follows a different logic from that of a trading company. The bank sees neither customers nor inventory: it examines the participations held, the origin of funds, the expected dividends and the people who control the structure. A file that explains clearly the role of the account in the group makes the analysis easier.

First present the organisation chart, from the ultimate owner down to the subsidiaries, then the foreseeable timetable of flows: capital injections, dividends received, intragroup loans and possible repayments. The bank wants to know whether these movements make economic sense. A simple diagram backed by contracts is better than a general description of the group strategy.

Depending on the institution, an interview with a corporate relationship manager is needed, sometimes with a presentation of the board or the directors. Timing varies with the bank and the complexity of the participations. No institution guarantees opening, and a holding with no real presence in Japan may face additional requests.

Documents to prepare for a Japanese holding company

Gather the certified registry extract, the articles, the corporate number, the seal registration certificate and the directors' identity documents. Add the list of shareholders and, if requested from the Legal Affairs Bureau, the certified list of beneficial owners. These documents must be consistent with each other, particularly on names, addresses and percentages held.

Also prepare the documents relating to the participations: share register, intragroup loan agreements, the latest accounts of the subsidiaries and any management agreement. A holding company in Japan that receives dividends must be able to link each receipt to the distributing company. The more precise these supporting items are, the fewer extra questions the bank needs to ask.

If the shareholders or subsidiaries are abroad, plan translations and evidence of the origin of funds. The bank may ask for audited accounts, the minutes of the management body or a letter from the tax adviser. Nothing is automatic: each institution sets its own requirements and may ask for other documents.

Common mistakes with a Japanese holding company account

The first mistake is to present the structure as a mere address. A Japanese holding company with no real board, no regularly kept accounts and no identifiable place of management inspires little confidence. Banks tend to prefer a genuine Japanese head office and reachable directors to a simple domiciliation.

The second mistake concerns flows. Intragroup transfers with no contract, no arm's length rate or no visible link to a participation prompt questions from the bank and may attract the attention of the tax authority. Document loans, dividends and capital injections at the time they are made, not afterwards.

The third mistake is to neglect international tax. Withholding on dividends paid abroad, the tax treaty, controlled foreign company rules and the tax residence of the holding are separate topics. Do not treat them lightly: a tax adviser who knows both Japan and the shareholders' country is essential.

Questions to ask before opening a holding company account in Japan

Ask the bank what it expects of a holding company in Japan in terms of substance: head office presence, board meetings, bookkeeping and reachable people. Also ask whether it accepts non-resident shareholders or directors, and on what terms. The answer varies with the policy of each institution.

Ask about the services useful for managing flows: international transfers, currencies, detailed statements by transaction and access for several signatories. A Japanese holding company receives and pays sums that may be large, so processing speed, exchange costs and the quality of statements weigh on day-to-day cash management.

On tax, remember that the bank passes on information under the CRS standard and that French resident shareholders declare their accounts abroad. Have an adviser validate the withholding, the applicable treaty and the filing duties. Finally, check the rules in force with the bank and the competent authorities.

Before approaching a Japanese bank, gather the documents that show the holding genuinely owns participations: the register of shareholdings, the group chart and the reasons for each intragroup loan or capital injection. The bank looks at an investment holding as a whole, so be ready to explain how dividends, group loans and capital injections will move through the yen account.

Compare the group tax regime with your own structure beforehand, and ask the bank in advance which documents it will want, so that a missing paper does not delay the opening of the account of your holding company in Japan.