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Common structures

To date, our understanding is that no Islamic finance product governed by Japanese law has been created. Nonetheless, Japanese financial institutions, such as Japanese banks and securities firms, engage in Islamic finance business in Malaysia and Middle Eastern countries through their subsidiaries or branches.


Special tax treatment is applied to Japanese sukuk, which is structured using a specified purpose trust under the ASA. Although the Japanese sukuk is a trust beneficiary interest, as a result of a series of amendments to the tax legislation, the Japanese sukuk is now treated more like a bond than a trust beneficiary interest from the tax perspective. Under Japanese tax law, the dividends to be paid to the foreign holders of a trust beneficiary interest are subject to taxation. However, the foreign holders of a Japanese sukuk are exempted from such taxation when they register the Japanese sukuk with the Japanese depository system and receive the dividends of the Japanese sukuk.

In addition, special tax treatment that reduces the transactional costs of typical Japanese sukuk backed by real property has been introduced. When an originator buys real property back from the trustee upon redemption, the buy-back transaction is normally subject to registration and licence tax and real property acquisition tax. However, if the transaction is conducted as part of a Japanese sukuk transaction, it is not subject to this taxation under certain conditions.

Other than the special tax treatment described above, no special tax treatment is given to Islamic finance. Islamic finance transactions are subject to general taxation rules under Japanese law. For example, a sale and purchase in a murabahah transaction will be subject to consumption tax, registration and licence tax and real property acquisition tax depending on the types of assets at issue.