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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 10105
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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How are Japanese corporation's dividends to stockholders

Customer Question

How are Japanese corporation's dividends to stockholders taxed?
Submitted: 1 year ago.
Category: Finance
Expert:  Lane replied 1 year ago.
As long as this is a qualified foreign Corporation, a dividend paid by a foreign corporation can be a “qualified” dividend provided certain requirements are met:.These requirement are the following: (i) incorporated in a possession of the United States, or (ii) eligible for benefits of a comprehensive income tax treaty with the United States..Japan and the U.S. DO have a tax treaty.You can read the technical explanation (the guide) to that treaty here: http://www.irs.gov/pub/irs-trty/japante04.pdf.SO, given that the dividends are qualified and taxed as any other qualified dividend or capital gain would be in the U.S.:Long-term gains and qualified dividends taxed at0% if taxable income falls in the 10% or 15% marginal tax brackets15% if taxable income falls in the 25%, 28%, 33%, or 35% marginal tax brackets20% if taxable income falls in the 39.6% marginal tax bracket.Let me know if you have questions ... lane
Customer: replied 1 year ago.
I'm sorry I didn't mean tax coming back for a US resident.I help people with their accounting. I have several Japanese nationals who work in Hawaii I help with ITINs and Tax Convention things necessary to reduce their taxes.A new Japanese National, brother & sister, wholly own a Japanese corporation for which they want me to help them with their US corporation's US and Japanese taxes. Their 91 year old accountant told them he is just too old to help them anymore. The question I am asking is for a Japanese National:How are Japanese corporation's dividends to stockholders taxed?Aloha,
Mort
Expert:  Lane replied 1 year ago.
OK thanks for that Mort.Are these people Tax rresidents? (either through substantial presence test or greencard?)
Customer: replied 1 year ago.
Scenario: Japanese corporation with one brother and one sister (both are Japanese citizens, sister has US green card and meets US presence test; brother does not meet US presence test and only has tourist visa.) as sole shareholders in 1986 forms a US C-Corporation (hereafter called ABC) to buy two real estate parcels in Hawaii. ABC stock transfer ledger has as sole stockholder the Japanese corporation. From 1986 to present Japanese shareholders just let earnings accumulate, neither distributing earnings directly to themselves nor to other investments.In October 2014 brother and sister form US XYZ, Inc to buy a coffee farm also closing in October 2014. ABC funds XYZ to buy coffee farm plus operating cash. XYZ was formed but lawyers left out stock transfer ledger sheet (as such XYZ ownership is unknown).The following questions are trying to optimize these transactions now and for the future sale of US assets & dissolution of US Corporations in the future:
Group One
1. Does Japan tax both corporate earnings and also dividends paid to stockholders?
2. Does Japan have pass through corporations similar to our S-Corp?
3. If Japan has S-Corp equivalent and if ABC pays taxes on its earnings & distributes those taxed earning back to Japan S Corp then per US Japan tax convention on dual taxation would the Japanese S-Corp equivalent be exempt from paying the taxes on the same earnings already taxed in US?
Group Two: ABC owns all XYZ stock
4. Does ABC distributing its already taxed earnings to XYZ in exchange for stock trigger a tax or simply a non-taxed new investment event?
5. Upon distributing earnings from XYZ to ABC are those dividends taxed at both XYZ & ABC?
Group Three: Original Japanese corporation also owns XYZ stock; both ABC & XYZ are owned by original Japanese corporation.
6. How would we transfer funds from ABC to XYZ without triggering a US Tax?For this task I may not be the most qualified but these people have come to trust that I will keep digging till I find them the best answers.Before we talk on the phone I want to read and digest your ideas first.

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