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Congratulations! According to Japan’s tax agency, you might be too rich. Japan is implementing a new tax targeting those who are “wealthy” that is due to take effect by July this year.
According to the wording of the legislation that will soon become law, (barring some kind of last-minute miracle), all who are considered by authorities to be permanent residents (and who own global financial assets exceeding a total of 100 million yen (around $850,000) will be mandated to pay this new exit tax. It applies only to those who wish to leave the Land of the Rising Sun to move abroad. So, if you are particularly enamored of your hard-earned cash, perhaps you might consider sticking around for retirement and a nice view of Mt Fuji…
Essentially, this new legislation is designed to prevent those deemed “wealthy” from moving to a new country where taxes are lower, (or nonexistent in some cases), where they could sell financial assets with little or no financial penalty. The good news for all who are supposedly rolling in the dough is this: Should you be a short-term resident of fewer than five out of the last 10 years, you will be spared the samurai sword of this new “exit tax.” Stay any longer and you are thus identified as a “permanent tax resident” and will feel the blade’s edge of the departure tax.
To further clarify, this "exit" tax would be applied to a person who no longer has "jusho" (or his or her main residence in Japan) or "kyosho" (meaning a temporary home) in Japan. If so applicable, then at the time of one’s exit from Japan, a person would be subject to taxation on any gains on securities and/or derivative transactions. On top of all that, these transactions would be settled at what the tax agency determines as fair market value. And this tax would also apply to gifts and inheritances of property on or after July 1, 2015, as well.
Foreigners aren’t the only ones affected as Japanese nationals will also be subject to the authority of this new law. If you think you might fit into this category, there is a likely reprieve: As a foreigner you will be allowed to exclude the years in which you may have held a visa other than the type that is termed as a permanent resident visa. So, if you were in country on a temporary visitor visa or held a spousal or professional visa or a business manager visa, you may be able to avoid the whoosh of the aforementioned samurai sword. For example, if you are on a short-term visa as an employee on assignment to Japan, (again fewer than five out of the last 10 years), your neck could be safe.
If you do fall into the category for this new tax and are just temporarily moving out of Japan and have no plans to sell any such financial assets while you are away, then you may choose to defer the tax payment for five years with an option of a possible extension for up to five additional years. But don’t think it’ll be all that clear cut (pun intended), as you will also be required to deal with an appointed tax representative in Japan. You will then be likely mandated to provide a collateral deposit to cover any possible future tax should your initial plans not pan out as envisioned. The good news is that if you return to Japan within a period of five years and you did not sell any financial assets, the exit tax would not apply to you and your collateral deposit would then be refundable. If this is the case then you would need to go to the trouble of filing an amended tax return for the year of your exit.
So, if you have substantial assets held overseas and want to avoid this exit tax, now might be a good time to pack up your bags (before July 1) OR learn the art of sushi-making or origami as you might be staying a while.
© Japan Today
20 Comments
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M3M3M3
Just set up a discretionary trust before you come to Japan. Problem solved. They can't tax what isn't yours.
nath
You might want to read this PDF file - trusts may not be the answer? http://ow.ly/NgyI9
Partial quote from the document, "Taxation of trusts. Trusts don’t create any tax advantages under the Japanese inheritance and gift tax laws.The trust is essentially ignored for tax purposes, and the trust beneficiary is taxed as if he received the assets outright, even if he never gains unfettered access to the principal. If the trust has multiple discretionary beneficiaries, the situation is problematic because the tax laws aren’t clear on how the tax will be allocated."
ebisen
M3M3M3 - really? do you think the J-Tax-Men are THAT stupid? :)
YongYang
And where's my vote?
Britlover
May 22 at the airport.
Immigration: How long will you be gone?
Rich person: Ten days, you can see on my return ticket.
June 2nd at the airport.
Immigration: ...
sangetsu03
Sorry, they will take your money, but they won't give you a vote. I am a business owner and employer, I contribute much to the economy, but I have no voice here, except by leaving and now they want to take away that option as well, This will be something people will consider in the future when they look for a country to set up a business in. Japan has just moved down a few more notches in desirability, going from "poor" to "bad".
But on the upside, even the voters in Japan have no real voice. The same group is always in power,
Scrote
How are they going to find assets held overseas? Will they try to make people declare them?
Most of my assets are already overseas where the Japanese tax agency can't find them.
M3M3M3
@ebisen
It not about the Japanese tax authorities being stupid or smart. The discretionary trust, by virtue of what it is and how it's structured is the scourge of every tax authority around the world. Now that Japan wants to start taxing global assets, they have to come to terms with its existence. (Something they've been able to avoid for the most part because you can't create one under Japanese law.)
@Joe Peters
Thanks for the link. I think you'll find that it confirms what I'm saying. Particularly where they say that the law is not clear on how they can allocated tax between beneficiaries. What they don't address is the possibility (which I am suggesting) that the trust is domiciled in some other jurisdiction before the settlor ever sets foot in Japan and every named beneficiary also lives outside of Japan and has absolutely no connection with Japan for tax purposes or otherwise.
That said, anyone who is lucky enough to be affected by this tax should probably talk to a professional tax advisor.
afanofjapan
sangetsu03, not many countries in the world where you can vote without having citizenship. You want to vote, apply to be naturalized. The thing is, i bet this tax wasnt aimed at us foreigners. It was aimed at rich Japanese people who go to retire in Hawaii/Thailand/wherever and take all their money with them. Its just that we get caught up with it too.
Laguna
I second Scrote's query. While I do not have near that amount now, I may once my dear parents pass on. These assets have and will always be in America. I do not declare any income currently derived from my US assets now, and no one has ever questioned me.
Does anyone have an answer to this?
katsu78
I don't really have a problem with this. Sovereign nations can levy taxes however they wish. I know of no nation on Earth that is obliged to give everyone who gets taxed in any way the right to vote - you want to have a say in how the country operates, make the commitment to citizenship. Especially for foreigners who don't want the tax applied to us, it's fairly simple to avoid- don't get permanent residence.
Really the only worry is how this affects people in that apparently ambiguous category of Zainichi Koreans.
turbotsat
Not from any knowledge on the topic, but if you think about it, if, say, the USA wants Japan to provide info on bank accounts in Japan for the USA's tax purposes, Japan is likely to expect the reciprocal.
GW
I think permanent residents are supposed to pay taxes on their global incomes.
This exit tax is extremely discriminatory, if you have already paid taxes on the income in Japan they should leave you the hell alone! Whats next are we going to have to apply for passports each time we want to travel!!
Its getting scary how much control govts are wanting over us mere pee ons! The future is going to be scary, luckily I will be dead or close enough to give a %$#^ I hope!
Noble713
Well that's just great. I'm already trying to figure out how to avoid a US exit tax if I ever get rid of my American citizenship. Now I have to scheme a configuration of shell companies and whatnot to dodge the Japanese tax man too?
theeastisred
There's an important transitional measure though. A person currently having (normal) permanent residency status from the immigration point of view as well as being a permanent resident from the tax point of view will not be obliged to pay the new exit tax until July 2020, by virtue of this transitional measure. In other words, the clock only starts on 1 July 2015 so it would not be possible to have spent 5 years in Japan from that date until 1 July 2020, which means the tax is not applied before then.
Assets covered are securities and other financial assets but not physical assets like real estate.
badsey3
This is probably part of the TPP agreement => so they are throwing it in your face now.
kcjapan
"Should you be a short-term resident of fewer than five out of the last 10 years, you will be spared the samurai sword of this new “exit tax.” - article
An incentive for short term residents? Matching the corporate cycle for multi-region deployments?
Elizabeth Heath
I suspect many will never see that much money in their lives, so the tax won't apply to them.
kurisupisu
I can really see myself detailing my extensive overseas assets to the Japaneese tax man........
SenseNotSoCommon
$850,000? Unemployed or just innumerate?