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Long-term foreign Japan residents must declare overseas assets — and could be taxed on them

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Special To The Japan Times

Taxation for foreign residents continues to be a topic of interest. Reader C writes:

I’ve read a number of your Japan Times articles on taxes but have noticed that there’s one big topic you seem not to have covered so far: Japanese taxation of overseas income for foreign residents of Japan.

In talking with other foreign residents, many of whom have been in Japan for years, I’m regularly surprised that so many seem unaware of the requirement to declare their foreign income in Japan. The fact is that foreigners who have lived in Japan for five years or more owe Japanese tax on their worldwide income, including overseas bank interest, stock dividends, mutual fund capital gains, rental income, translation work, writing, proofreading, programming, consulting, etc., whether or not they bring those overseas earnings into Japan.

With the recent institution of the My Number system in Japan, as well as the increased cooperation between governments in detecting tax fraud, it seems like it would be a good idea if you brought this matter to your readers’ attention.

Lifelines spoke to tax specialist and consultant Calvin Tong, who has helped with previous tax-related inquiries.

“People who work for Japanese companies usually receive what is known as a gensenchōshūhyō (income tax withholding statement) at the end of the year. Their taxes — or at least those pertaining to company wages — are usually settled by nenmatsuchōsei (year-end tax adjustment). In addition, taxes on interest income from bank accounts are remitted by the institutions to the tax offices directly and do not have to find their way onto separate tax filings,” Tong explains. “Thus, for many people, there is not much more that they think they have to do personally.”

However, as the reader points out, foreign nationals who have been in Japan for more five years are classified as “permanent residents” for tax purposes, regardless of their visa status. The rules state that income derived from outside of Japan should be reported via a filed tax return. Tong adds that any losses from investments should also be reported, as they may help to reduce tax.

“Another matter to be aware of are the asset-reporting forms that have been introduced or revised by the Japanese government in recent years. These are to help them get a better sense of, and to track, what residents here have overseas,” cautions Tong. “Being aware of these obligations can be more important than the tax return filings themselves: The reason is that penalties can be stiffer than penalties assessed on unpaid tax from unreported income.”

The choice on how closely to follow these rules may depend on the amount of overseas assets you actually own. Tong gives the following example:

“If someone has ¥60 million in assets overseas, combined in bank accounts, antiques, a house, etc., the new overseas assets reporting (OAR) form comes into play. OAR became mandatory from the 2014 tax year. The threshold is ¥50 million.

“The penalty for noncompliance is ¥500,000 or a year in jail, irrespective of any earnings derived. This person should definitely file, even if a tax return is not required to accompany it,” Tong advises.

The required forms can be found at www.nta.go.jp/tetsuzuki/shinsei/annai/hotei/annai/27_bn.htm, but unfortunately — and somewhat ironically — the PDFs, and the instructions on how to fill them out, appear to only be available in Japanese.

Kiwi Louise George Kittaka has been based in Japan since she was 20. In the ensuing years she has survived PTA duty for three kids in the Japanese education system and singing live on national TV for NHK’s “Nodo Jiman” show, among other things. Send your comments and questions to lifelines@japantimes.co.jp.