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When a PEF is established in Asia, it often has a form of LPS. It also can be an LLP; yet to establish one in Japan the managers must conclude an agreement first.
Investment funds in Japan are required to have one general partner and one limited partner.
General partners are mainly responsible for managing the overall activities and liabilities of investment funds. On the opposite, limited partners are not allowed to participate in managing the overall activities and can only bear responsibilities according to the amount of their capital contributions. While registering a PEF in Japan, fund managers must perform fund activities respectfully to their partners.
Activities such as acquiring shares or managing funds in Japan are governed by FIEA. When an investment fund wants to buy stocks, assets, or securities issued by non-Japanese entities, the amount of the purchase should not be higher than 50% of partners’ total capital contribution.
The requirements stated by FIEA are necessary to follow when investors buy shares of Japanese funds. We know that more than 50% of an LPS’s assets are invested in publicly offered securities. That is why their issuers have to register securities in Japan and prepare a prospectus before they start offering them publicly. Besides, a company has to be registered in Japan if LPS’s general partner wants to attract foreign investors.
There are no qualification criteria required to fulfill when an entity licensed in Type 2 financial instruments seeks to attract investors for purchasing a partnership’s shares. Nevertheless, qualification criteria must be satisfied if a general partner wants to attract investors by making a private placement (See Art. 63).
General partners can register an investment fund in Japan only if they operate an investment entity where at least 50% of assets are invested in derivatives or securities. To fulfill this requirement general partners have these options:
According to Japanese legislation, the requirements of paying taxes do not apply to partnerships. This means that investors receive their part of profits and losses from the investment activities, and those are not taxed.
When it comes to foreign investors, they are required to pay income and corporate taxes on profits that were earned in Japan. The fact whether they have a permanent establishment in Japan and the type of an establishment influences the level of taxes applied to the investor. Once one has a registered establishment, they are investing through an LLP and conduct business activities in Japan.
Are you planning to set up a fund in Japan? Our experts will advise you on fund regulation in the state of Japan. Contact COREDO and schedule a consultation.