Changes in Wealth Tax for Residents of Japan

Japan is looking into overseas assets of its residents

A view of a villa by night from the pool side

The government of Japan has introduced new tax rules for its residents to fight tax avoidance, especially among the wealthier ones. New measures will come into force in the fiscal year of 2020 and will tighten the regulations about the disclosure of the overseas assets. In this article, you will find all the key take outs about the tax changes and how they apply to non-Japanese residents of the country and their overseas assets.

Why change the tax law?

Tax dodging through both legal and illegal schemes has long been angering the global community, and the Organization for Economic Cooperation and Development along with other groups directed its efforts to crack down on this harmful trend.

The National Tax Agency of Japan has received 9,551 reports about the foreign assets since June 2018 totaling at JPY 3.67 trillion. The number grows each year. Yet, the Agency believes that there is more to this sum as many people do not fully disclose their assets or do not even submit the reports.

Residents of Japan who have overseas assets of over JPY 50 million (USD 462,000) should report about the transactions made using these assets.

Although authorities have introduced fines for tax avoidance, the case of the Osaka Regional Taxation Bureau of 2015 has highlighted that taxpayers still do not fully disclose their assets. For example, one of the taxpayers who held stock in the Shinhan Bank in South Korea did not declare the fact of having JPY 1.5 billion in dividends as well as capital gains on the shares.

Thus, the government looks for better incentives to promote transparency. The new set of rules will add to already existing Common Reporting Standard that makes it possible to share information on financial accounts of foreign nationals and companies within roughly 100 participating jurisdictions globally. Japan has already collected information about 550,000 accounts linked to holders in 64 countries and regions as reported by Nikkei.

What has changed in the wealth tax rules?

So far, the tax law makes it a must for the residents of Japan to report the types of foreign assets if those are more than JPY 50 million (about USD 462,000) in value. This law has been in place since 2014. However, it seems that many people have found workarounds to avoid the rule by not declaring the cash flows and having their assets stocked in the offshore heavens or closing the deals using overseas transactions. As the result, tax authorities do not have a full picture of tax avoidance.

The new set of rules urges the residents of Japan who have overseas assets of over JPY 50 million to report also about the transactions made using these assets, as reported by the sources close to the matter.

Some examples of such assets and tractions are:

  • Accounts in foreign banks and transactions through them.
  • Dividends and capital gains on foreign securities.
  • Rent income from overseas properties, etc.

The exact set of rules and regulations will be drafted later this year. Yet, it will become a compulsory regulation from nest fiscal year, which in Japan will be April 1, 2020.

How to comply with the new regulations?

While submitting a disclosure report does not seem to be mandatory so far, the government works towards the promotion of tax transparency through voluntary disclosure of one’s assets and transactions.

Taxpayers might be asked to deliver disclosure reports on request of the authorities. If a taxpayer fails to submit a report or an auditor finds out that the submitted report did not include the overseas transactions, this person will face penalties for breaking the law. However, those who have willingly submitted the disclosure reports will have to pay less in fines.

"Otsumami" - a bite size snack:

Similar to the income tax, all the residents of Japan are highly encouraged to properly declare their assets to avoid fines and penalties.

What do you think?

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