We have started to notice that more large wage earners in Japan are getting questions from the tax office . . . on overseas assets. So, have you set up your assets properly to legally avoid the coming Japanese tax grab?
In 2013 there is an effort to ensure that the taxable income arising from overseas assets is correctly and fully disclosed. Residents of Japan with assets held overseas worth over JPY50 million will be required to file a report disclosing those assets to the tax authorities. This new requirement is in addition to the “5 year rule” where all foreigners are taxable on their worldwide income after they have lived in Japan for 5 years.
Reporting requirement (50 million is about $500,000)
By 15 March of each year a Japan-resident taxpayer who holds overseas assets with a fair market value of more than JPY50 million as of 31 December of the previous year will be required to file a return declaring those assets. The first report will be due in March 2014 for assets held at 31 December 2013.
The location of assets is to be determined using the regulations applicable to inheritance tax. The table below shows the location for commonly held assets.
| Asset | Location |
| Immovable assets | Physical location of the asset |
| Cash deposits | Address of the branch where deposits are held |
| Bonds/Shares | Address of the head office of the issuer |
As a result the report will not only identify undeclared sources of foreign income, but could also be used in identifying overseas assets for inheritance tax purposes.
Penalties for non-compliance
The penalties for non-compliance are similar to those for the share based remuneration requirements above. If a taxpayer fails to file the report or deliberately files a false report, they a face a penalty of either a maximum of one year in prison or a maximum fine of JPY500,000. These penalties will apply to the second reporting period (for assets held at 31 December 2014) onwards. In addition the usual penalty for non-disclosure of income will be increased by 5% to 15% in cases where the underlying asset is not disclosed in this report. If the asset is disclosed, the penalty is reduced to 5% of the income.
Summary
The information disclosed in this report will aid the tax authority not only in identifying overseas sources of income, but also in ensuring that inheritance estates straddling multiple jurisdictions are fully disclosed. This is another sign of the increasingly aggressive stance the tax authority is taking to cross-border inheritances.
Banner Japan is able to assist with the setup of a variety of Japan tax compliant structures and solutions — call us today for a free consultation on what we can do to shield and grow your assets. Also it is always best to start planning early even if you assets are not quite yet at 50m. Those who plan will be better off.
These solutions and structures will also shield you from the “5 year rule” too – contact us now and we can have a discussion to minimize your Japan tax exposure.
