Wide Expectations that Dividend Repatriations Will Boost the Yen

Changes in Japan corporate tax rules now means that 95% of dividends received by Japanese companies from overseas subsidiaries from April (the new fiscal year) are now tax free. However, tax breaks on dividends from companies in tax havens with tax rates of 25% or lower will be delayed a year.

Heretofore, Japanese companies preferred to keep these dividends overseas to avoid additional taxes on the difference between overseas and Japan tax rates. For example, if the effective overseas tax rate on dividends is 20%, Japanese companies would have to pay the difference with this rate and Japan's effective tax rate, which is 40%.

According to METI figures, retained earnings held by overseas subsidiaries of Japanese companies were about JPY20 trillion in 2007, and Japanese companies repatriated about JPY1 trillion of this as dividends. JP Morgan Chase bank estimates that the tax rule changes could result in overseas dividend repatriations of up to JPY4 trillion, and this is a reason why yen forex traders keeping talking about a stronger yen. There is evidence that large companies like Mitsui & Co. Daiichi Sangyo, Seiko Epson and others are moving to individually repatriate hundreds of billions of yen in dividends.