The story sheds light on a particular way that foreign investors into the Asian country can make a large tax saving by routing their funds via Singapore.

Investors deploying capital into Japan via Singapore avoided almost Y99 billion ($690 million) in Japanese taxes from 2020 and 2022 due to a treaty loophole, a media report has said. 

Based on materials that Nikkei Asia said it has collected, foreign investors sent money via offshore centres such as the Cayman Islands into Singapore. Local businesses then put funds into a type of Japanese special-purpose company, known as a tokutei mokuteki kaisha (TMK), the report said. The TMKs then invest in Japanese data centres, logistics hubs or other real estate, sending the profit they earn back to Singapore as dividends. TMKs that meet certain conditions can deduct dividend distributions from their profit, reducing their corporate tax liability, the report said. 

The report noted that dividends are usually taxed at around 20 per cent. Bilateral tax treaties can reduce this amount; when this effect is added to the TMK corporate tax deduction, investors benefit from a double break.

The report added that Japanese tax authorities have confirmed through audits that roughly Y640 billion in dividends was distributed from TMKs to Singapore between 2020 and 2022. 

The report did not say whether this process is improper or in breach of a specific law.