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Debt Equity Swap in Japan

Debt Equity Swap in Japan

Suppose you run a company in Japan. You are the sole director and shareholder of the company.

You have not received any director’s fees from your company, although the shareholders’ meeting has resolved that your director’s fee is 300,000 yen per month.

This means that you have a monetary claim against your company for the unpaid director’s remuneration.

(In addition to unpaid executive compensation, you may also have an unpaid rent claim against the company, such as when you rent out your residence to the company and you do not receive rent from the company.)

This means that your company owes a debt to you.

So you decide to use a debt equity swap to reduce the company’s debt.

In other words, you use your claim against the company as a contribution in kind, and the company issues new shares of stock to you.

It is called a “debt equity swap” because it is an exchange of debt for equity. However, it is just the same as a contribution-in-kind using a monetary claim.

This way, the amount of debt owed by the company is reduced and it may be easier to borrow money from the bank in the company’s name.

And since the amount of the company’s capital is also increased, the company may get more credit from its clients.

And by converting from money claims to equity, you may be able to reduce your inheritance tax bill when you die in the future.

However, there are some disadvantages to this debt equity swap.

The amount of corporate inhabitant tax may increase because of the increase in the amount of the company’s capital. This is especially important if the amount of capital exceeds 10,000,000 yen.

Also, since the amount of capital and the number of shares issued will increase, change registration procedures will be required.
(If the company’s capital is increased by 5,000,000 yen, the registration tax amount is 5,000,000 yen * 0.7% = 35,000 yen)

🌸 Required documents for registration in the case of a debt equity swap

Since a resolution to issue new shares will be passed at a shareholders’ meeting, minutes of the shareholders’ meeting and other documents are required.

In addition, the company’s general ledger and other accounting books will be required to prove that you have a monetary claim against the company.

If you want to go through the registration process using a debt equity swap, please contact me.

akiyama@japan-law-tax.com