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.”
PROTECTION: The investigation, which takes aim at exporters such as Canada, Germany and Brazil, came days after Trump unveiled tariff hikes on steel and aluminum products US President Donald Trump on Saturday ordered a probe into potential tariffs on lumber imports — a move threatening to stoke trade tensions — while also pushing for a domestic supply boost. Trump signed an executive order instructing US Secretary of Commerce Howard Lutnick to begin an investigation “to determine the effects on the national security of imports of timber, lumber and their derivative products.” The study might result in new tariffs being imposed, which would pile on top of existing levies. The investigation takes aim at exporters like Canada, Germany and Brazil, with White House officials earlier accusing these economies of
EARLY TALKS: Measures under consideration include convincing allies to match US curbs, further restricting exports of AI chips or GPUs, and blocking Chinese investments US President Donald Trump’s administration is sketching out tougher versions of US semiconductor curbs and pressuring key allies to escalate their restrictions on China’s chip industry, an early indication the new US president plans to expand efforts that began under former US president Joe Biden to limit Beijing’s technological prowess. Trump officials recently met with their Japanese and Dutch counterparts about restricting Tokyo Electron Ltd and ASML Holding NV engineers from maintaining semiconductor gear in China, people familiar with the matter said. The aim, which was also a priority for Biden, is to see key allies match China curbs the US
Teleperformance SE, the largest call-center operator in the world, is rolling out an artificial intelligence (AI) system that softens English-speaking Indian workers’ accents in real time in a move the company claims would make them more understandable. The technology, called accent translation, coupled with background noise cancelation, is being deployed in call centers in India, where workers provide customer support to some of Teleperformance’s international clients. The company provides outsourced customer support and content moderation to global companies including Apple Inc, ByteDance Ltd’s (字節跳動) TikTok and Samsung Electronics Co Ltd. “When you have an Indian agent on the line, sometimes it’s hard
‘SACRED MOUNTAIN’: The chipmaker can form joint ventures abroad, except in China, but like other firms, it needs government approval for large investments Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) needs government permission for any overseas joint ventures (JVs), but there are no restrictions on making the most advanced chips overseas other than for China, Minister of Economic Affairs J.W. Kuo (郭智輝) said yesterday. US media have said that TSMC, the world’s largest contract chipmaker and a major supplier to companies such as Apple Inc and Nvidia Corp, has been in talks for a stake in Intel Corp. Neither company has confirmed the talks, but US President Donald Trump has accused Taiwan of taking away the US’ semiconductor business and said he wants the industry back