Tax Reform Regarding Tokenized Corporate Bonds in Japan

The 2024 tax reform in Japan took a significant step forward toward establishing a tax system designed to promote the issuance of corporate bonds as security tokens for wholesales. Prior to the amendment, certain entities, including banks, insurance companies, and certain financial instruments business operators, were subject to withholding tax on interest income from tokenized bonds. However, these entities are now exempt from the withholding tax, provided the tokenized bonds are managed in accordance with the relevant public notice of the Financial Services Agency in Japan. Owing to this recent tax reform, the barrier that previously prevented many companies from issuing security token bonds for wholesale purposes has been removed, and as a result, the issuance of such bonds is expected to increase substantially going forward.