Overview of TK
A Tokumei Kumiai (TK) is a form of contractual silent partnership under Japanese law, used primarily for investment purposes. It is governed by the provisions of the Japanese Commercial Code (as partially superseded by the Companies Act) and does not constitute a separate legal entity.
Under a TK agreement:
Silent Partner (Tokumei Kumiai-in) contributes funds or assets to the Operator (Eigyo-sha), who conducts the business in their own name.
The Silent Partner does not appear in external transactions and bears no liability to third parties beyond their investment.
Profits (and losses, if agreed) from the business are allocated to the Silent Partner according to the TK agreement.
From a legal perspective, the Silent Partner’s rights are purely contractual and relate to profit-sharing, not ownership of the business assets.
Key Features:
No Legal Personality – The TK itself is not a corporation or partnership with legal standing.
Anonymity – The Silent Partner’s name is not disclosed to third parties in business dealings.
Tax Treatment – For Japanese tax purposes, TK income is generally treated as if earned directly by the Silent Partner through a “pass-through” mechanism, but foreign investors may face withholding tax depending on the nature of the income (e.g., domestic source real estate income).
Common Use Cases – Often combined with a Japanese limited liability company (GK) as the Operator in the “GK-TK structure” for real estate and renewable energy investments.
Advantages of a Tokumei Kumiai (TK)
A Tokumei Kumiai (TK), or Japanese silent partnership, offers several legal, commercial, and tax benefits that make it a popular structure for domestic and cross-border investments, particularly in real estate and renewable energy projects.
1. Contractual Flexibility
●A TK is formed through a simple contract between the Silent Partner and the Operator.
●The profit-sharing ratio, investment period, and exit terms can be freely determined by agreement, without the statutory restrictions often found in corporate forms.
2. Limited Exposure to Third-Party Liability
The Silent Partner’s name does not appear in external transactions, and they bear no direct liability to third parties beyond their investment, provided they do not act in the name of the business.
3. No Legal Entity Required
●Since the TK is not a separate legal entity, there are no corporate registration or annual filing requirements for the TK itself.
●The Operator is responsible for all operational and regulatory obligations.
4. Tax Pass-Through Treatment
●Under Japanese tax law, TK income is generally treated as if earned directly by the Silent Partner (“pass-through” taxation).
●This avoids corporate-level taxation at the TK level, preventing economic double taxation.
●Foreign investors can benefit from direct access to treaty-reduced withholding tax rates, depending on the nature of the income and applicable tax treaties.
5. Withholding Tax Considerations for Foreign Investors
●For TK interests related to Japanese real estate or other domestic-source income, the Operator must withhold Japanese income tax (generally 20.42%).
●If a tax treaty applies, the withholding tax rate may be reduced.
●In certain structures (e.g., when combined with a GK in the GK-TK scheme), it may be possible to optimize tax efficiency and manage the tax exposure for foreign investors.