Securitization law in Japan

A specific law dealing with securitization, “Law on the Securitization of
Specified Assets by a Special Purpose Company” (the “SPC Law”) was amended and issued on May 31, 2000. Under the amendment, the SPC Law was renamed “The Law on the Securitization of Assets” (the “New SPC Law”) and the law has been effective since November 30, 2000.

While under the earlier version of the law, only real estate was securitisable, the present text of the law permits securitization of property in general - both real estate and personal property.

There was a capital adequacy and registration requirement for SPCs under the earlier law. This was obviously misplaced and was substantially diluted under the amendments. The capital requirement was brought down to Yen 100000 and the registration requirement was changed to prior notification of securitization plans.

Another important aspect of the new law is the tax neutrality provided to SPCs by providing that if more than 90% of the taxable income of the SPC is distributed in form of dividends, then the dividends are treated as tax deductible expense for the SPC. This enables the SPC to issue equity-type or pass-through type instruments and yet be tax-neutral.

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