Japan’s push to make itself a more attractive financial hub faces a taxing problem if it is to stop the drip-drip departure of finance professionals to other countries in Asia.
While the COVID-19 pandemic has put most relocations on the back burner for now, Japanese Prime Minister Yoshihide Suga is trying to better position Tokyo as a potential base for financiers when transfers and hiring return. Efforts so far show that the government has identified taxation and the language barrier as key hurdles.
China’s intensifying crackdown on Hong Kong has raised hopes that Tokyo might finally have a better chance of competing as a banking destination.
Photo: Bloomberg
However, Japan still appears a long way from making the numbers work.
Finance industry stars with million-dollar salaries would have to hand over half their earnings to the government for the privilege of working in Tokyo. That unpleasant fact suggests that recent efforts can only help stop the rot at best, rather than turn the tide.
It is true that employees with more modest salaries might actually be better off in Tokyo than in Hong Kong or Singapore, because Japan’s tax rates are progressive and living costs are surprisingly low.
Years of deflation have driven Tokyo rents way down since the go-go days when the land under the Imperial Palace was supposedly worth more than all of California.
The monthly cost of a three-bedroom apartment in the center of the capital, for example, is US$3,210, about 40 percent less than the equivalent in Hong Kong, and half what you would pay in San Francisco or New York City, according to cost-of-living calculator Numbeo.
However, lower rent and cheaper eats might not matter much to traders or C-suite executives, because Japan’s tax burden would erase those savings many times over.
Thomas Ip, an accountant from Hong Kong who has lived in Tokyo for almost two decades, said he loves the city, but international schools are pricey and taxes can be unbelievable.
“People with families would need to think very carefully about making a move,” he said.
Consider take-home pay on a US$400,000 salary. In Tokyo, combined central and local government income taxes would hit 55 percent. Factor in social insurance premiums and exemptions and that would whittle the amount down to about US$225,941, according to an online payroll estimator by accounting firm HTM.
Japan’s National Tax Agency declined to offer its own calculation.
In Hong Kong or Singapore, you would have more than US$331,000 left over after paying personal income taxes with marginal rates that do not exceed 22 percent. Any capital gains would be tax-free.
No wonder big-earners on Tokyo trading desks sometimes ask for transfers out, while others try to engineer their schedules so they spend less than half the year in the country to avoid being classified as tax residents.
“Everybody loves Japan, but the big hurdles to luring hedge funds to Tokyo are taxes and the language component,” said Hennessy Japan Fund’s Masakazu Takeda, who buys and sells Japan stocks from a desk in Hong Kong.
To try to stop the bleeding, Japan is next month to open a one-stop service center for foreign financial firms, so they can start filing paperwork entirely in English.
On taxes, the government has said it would treat more fees from fund performance as capital gains instead of income, a break similar to the carried-interest loophole in the US.
From April next year, foreign bankers and other workers on high-skilled visas would also be exempted from Japan’s “terrifying” inheritance taxes on assets bequeathed abroad.
Setting aside the politics of giving tax breaks to rich foreigners, it is unclear how much business the moves would generate for Japan.
Foreign financial institutions trimmed staff in Japan by 10 percent in the eight years through March last year, Japanese Ministry of Economics data showed.
Personal income taxes and the language barrier are not the main reasons, though.
Companies are putting people where the money is. In Asia, that has meant getting closer to China, where economic growth has outpaced Japan’s sixfold in the past decade.
Joshua Bryan, who heads the financial services practice at recruiter Robert Walters Japan, said more foreigners might be willing to work in Tokyo these days given Hong Kong’s problems, but there are not enough jobs for them.
“Businesses must see strategic advantages to making Tokyo their regional headquarters,” he said in an e-mail. “As long as companies locate HQs outside of Japan, ambitious individuals may have some hesitations about relocating here.”
ENERGY ISSUES: The TSIA urged the government to increase natural gas and helium reserves to reduce the impact of the Middle East war on semiconductor supply stability Chip testing and packaging service provider ASE Technology Holding Co (日月光投控) yesterday said it planned to invest more than NT$100 billion (US$3.15 billion) in building a new advanced chip testing facility in Kaohsiung to keep up with customer demand driven by the artificial intelligence (AI) boom. That would be included in the company’s capital expenditure budget next year, ASE said. There is also room to raise this year’s capital spending budget from a record-high US$7 billion estimated three months ago, it added. ASE would have six factories under construction this year, another record-breaking number, ASE chief operating officer Tien Wu
The EU and US are nearing an agreement to coordinate on producing and securing critical minerals, part of a push to break reliance on Chinese supplies. The potential deal would create incentives, such as minimum prices, that could advantage non-Chinese suppliers, according to a draft of an “action plan” seen by Bloomberg. The EU and US would also cooperate on standards, investments and joint projects, as well as coordinate on any supply disruptions by countries like China. The two sides are additionally seeking other “like-minded partners” to join a multicountry accord to help create these new critical mineral supply chains, which feed into
For weeks now, the global tech industry has been waiting for a major artificial intelligence (AI) launch from DeepSeek (深度求索), seen as a benchmark for China’s progress in the fast-moving field. More than a year has passed since the start-up put Chinese AI on the map in early last year with a low-cost chatbot that performed at a similar level to US rivals. However, despite reports and rumors about its imminent release, DeepSeek’s next-generation “V4” model is nowhere in sight. Speculation is also swirling over the geopolitical implications of which computer chips were chosen to train and power the new
Intel Corp is joining Elon Musk’s long-shot effort to develop semiconductors for Tesla Inc, Space Exploration Technologies Corp and xAI, marking a surprising twist in the chipmaker’s comeback bid. Intel would help the Terafab project “refactor” the technology in a chip factory, the company said on Tuesday in a post on X, Musk’s social media platform. That is a stage in the development process that typically helps make chips more powerful or reliable. The chipmaker’s shares jumped 4.2 percent to US$52.91 in New York trading on Tuesday. The Terafab project is a grand plan by Musk to eventually manufacture his own chips for
RSS