Be wary of your investments -- the TAXMAN is watching

[O'Hanlon]

I find myself approaching the 5 year mark. Although I would like to continue staying on I really can't see it happening. I would be interested to know if you agree with my thinking.

I am 43, Australian non-resident status, staying in Japan on a spouse visa. Main purpose of stay in Japan is for the kids to attend regular J school and be raised as bi-cultural. I work as a business E instructor and do the weddings gig on the weekend. The problem comes with the investments in Aust, $1.3m in shares, $300k in term deposits, no property. At the moment I am only required to pay 10% withholding tax on the bank interest, the share income through dividends is not considered (probably wrong choice of words there), but also the imputation credits cannot be taken into account. I probably earn about 4m yen in Japan. I file 2 different tax returns which at the moment are independant of each other.

Now, I realise that from the 5 year mark, my worldwide income will need to be disclosed if I stay in Japan. Would this mean the income that I am required to declare on the Aust tax return, ie $18000 in interest earnt of which $1800 tax is paid, or would I also need to disclose all the income earned in Australia, ie include the dividends, with the imputation credits?

I realise that I will need to get professional advice on it, but just looking for others opinions first.

Thanks a lot.

They will tax you on any interest earned on investments in Australia, If you have paid Australian non-residence tax on your income, they will charge 10%. If no tax paid 20%, Again if your total earnings from overseas pushes you into a higher tax bracket the percentage will increase. I can only comment on my own experience, having nailed by the NTA and then the local ward office.

[O'Hanlon]

During Obon, I heard of another 9 year plus foreigner in Nagano, who recently got the innocent sounding questionnaire on transfer of funds. A second follow-up letter has asked him to disclose all foreign interest earning accounts. He does not earn over 8 mil. I am convinced they are tracking and trawling the foreign residents. He underestimates what lies ahead.

[Majestic]

skimpy - the gift tax kicks in at JPY 1,100,000 per year per individual.

shamar - the NTA will view your foreign dividends and interest as taxable income. You should receive a credit for any taxes paid to the ATO. If I'm not mistaken you do not receive any imputation credit here in Japan, but I could be wrong on this. Some interesting info regarding the Japanese view of imputation credits on page four of this article here > www.rikkyo.ne.jp/grp/kitahara/NO2_kazei_0925.doc And yes, with A$1.6 mil in assets, you should crack the wallet open and get a tax pro to chime in on this.

[skimpy]

skimpy - the gift tax kicks in at JPY 1,100,000 per year per individual.

Thanks Majestic, that's the amount I thought I was entitled to.

It would be interesting to know if any permanent residents have been audited within 4 years or so of becoming PRs. You could argue that the NTA allow you time to sort out your affairs but once the 5 years are up, they figure, 'OK, we've given you enough time and you haven't yet fallen inline so it's time we make you do so.'

[minamon]

... my worldwide income will need to be disclosed if I stay in Japan.

It would seem to me that nearly every non-Japanese here has some sort of bank account or investment in their native country (or offshore), but very few of us declare the little(?) bits of interest earned. If you eventually begin to earn significant interest, it seems too late to declare it here -- the Jp tax people might easily ask how long you have had the account, and ask for complete documentation, which might be very hard to organize.

Up till recently, tax and financial organizations in one country would not cooperate with requests from another country to investigate someone unless there is a suspected crime invovled. The exception to this would seem to be the US (and to a lesser extent Germany and UK) who have recently put the squeeze on Switzerland, which is famous for legal and semi-legal money laundering. The US (and maybe UK/Ger), had leverage by threatening sanctions on Swiss banks.

Otherwise I could imagine countries cooperating when they both have something to gain (significant numbers of citizens living in each other's countries), but I cant imagine any cooperation where there is no mutual gain, and one country does not have leverage over the other.

I wonder if Australia might fall into the mutual gain category with Japan?

I wonder where this leaves small faraway offshore locations like IOM and Channel Islands? They certainly wouldnt give out customer data to a foreign government unless compelled to do so, and I dont think they are within economic sphere of influence of Jp (i.e., they are not strictly part of the UK).

Any opinions?

[minamon]

It would be interesting to know if any permanent residents have been audited within 4 years or so of becoming PRs. You could argue that the NTA allow you time to sort out your affairs but once the 5 years are up, they figure, 'OK, we've given you enough time and you haven't yet fallen inline so it's time we make you do so.'

Became PR in late 90s. Never had an audit, although I did get a friendly letter from tax office 6 years ago asking about a large inward transfer (17mill to buy a house). They didnt ask about tax (transfers to buy a house seem to be (or have been) allowed. Things seem to have got more strict over the last 3 or 4 years.

[jrp]

a friend pointed me to this thread

been in a japan for 14 years

lots of jobs, currently own small eng. school in a small remote? city

got PR 5 years ago

3 weeks ago we got a call that we were to be audited and to have ALL our books and banking records available...

we visited an accountant, he frowned when he looked at our books and scratched his head when he looked at our bank statements...

he called the tax office and rescheduled the visit/audit so he could be there too and my wife could better sort our books

the day of the audit a single guy came and went through the books pointing out lots of errors and chasing stationary purchases from the 100yen shop

he had a stab at the OS bank statements but couldn't read much english so he asked me to take him through them

he asked if that was all the bank accounts, i said yes

he looked into his folder and asked about a small account with a large trading bank that had recently been closed

i pointed out those papers in my binders and apologized that i thought he only meant current accounts from normal banks

he eyed my folders and asked to take them back to his office to for photocopying, promising to return them the next day

i thought this was a bit of a crucial moment where i would be judged an errant sheep, to be gently nudged back on track

or a wolf to be slaughtered, skinned and hung out to dry as a warning to wolves everywhere...

so i said yes, take the folders

he said that he was new to this too, he would try to put it all together in his office, he would be back

but that as i was self employed and had filed returns they would be looking for me to pay back taxes for the last 3 years on OS earnings

my wife's OS income though would be back taxed for 5 years

our next appointment is next week

the friend who pointed me to this thread came to japan about the same time

has earned about the same

has sent about the same home

and got PR 5 years ago too

his 1st audit visit is this week

me thinks a pattern is emerging

This is really informative, thanks for sharing. It'll be interesting to hear what happens - hopefully all positive from your persective.

Can I ask which country your OS income is from, and your friend whose audit is coming up?

Also what sort of amounts are you talking about? Are you also sending money internationally either way?

[shamar]

Thanks for the advice, it just seems so easy to live here up to 5 years, then it gets all mucked up! I wish you all well in your pursuits.

[skimpy]

I asked the auditor of my case if it was due to my PR status that I was being investigated to which he responded, NO. He went on to say that it doesn't matter what stamp you have in your passport, if you've been living in Japan for over 5 years, you are considered PR, and therefore all foreign income must be declared.

[Morton]

This is really informative, thanks for sharing. It'll be interesting to hear what happens - hopefully all positive from your persective.

Can I ask which country your OS income is from, and your friend whose audit is coming up?

Also what sort of amounts are you talking about? Are you also sending money internationally either way?

I take it erice had second thoughts about posting and deleted his message. If so, I felt the same when I was posting last year. I hope he posts to let us know how it pans out.

[skimpy]

I take it erice had second thoughts about posting and deleted his message. If so, I felt the same when I was posting last year. I hope he posts to let us know how it pans out.

His post was a very interesting read, and not so dis-similar to my experience so I also hope he returns.

One thing that has been a catalyst in my case is transfer of money between my account and my wife's. You can only transfer 1.1m/year to your wife's account, any more and you'll be penalized. This also applies to purchasing property if you plan to put it in joint names. It's got to be seen that money has come from both parties. I guess when considering big purchases or movement of money, it's best to seek advice it seems. We are all the more wiser, though it's been an expensive lesson.

[Super Grover]

I find myself approaching the 5 year mark. Although I would like to continue staying on I really can't see it happening. I would be interested to know if you agree with my thinking.

I am 43, Australian non-resident status, staying in Japan on a spouse visa. Main purpose of stay in Japan is for the kids to attend regular J school and be raised as bi-cultural. I work as a business E instructor and do the weddings gig on the weekend. The problem comes with the investments in Aust, $1.3m in shares, $300k in term deposits, no property. At the moment I am only required to pay 10% withholding tax on the bank interest, the share income through dividends is not considered (probably wrong choice of words there), but also the imputation credits cannot be taken into account. I probably earn about 4m yen in Japan. I file 2 different tax returns which at the moment are independant of each other.

Now, I realise that from the 5 year mark, my worldwide income will need to be disclosed if I stay in Japan. Would this mean the income that I am required to declare on the Aust tax return, ie $18000 in interest earnt of which $1800 tax is paid, or would I also need to disclose all the income earned in Australia, ie include the dividends, with the imputation credits?

I realise that I will need to get professional advice on it, but just looking for others opinions first.

Thanks a lot.

Of course get GOOD professional advice. Here is my advice based on my bitter personal experience and that of an Aussie (there are others but you are an Aussie). I would leave Japan. Here is a scenario: If your account is held jointly with your wife, and it has earned enough interest so that it would push your wife above the threshold here (assuming she is not working), then she will be liable for tax and back payments in social security here (assuming you pay for the family). All in all, if I had known what was coming, we might have lived separately with me returning to Canada. Now we are fearful of disposing of some assets (bad time anyway) because it will attract ridiculous tax.

I am in Australia now. You could do a LOT worse than living in Gold Coast or Southport, but damn, it costs $4-$6 for a regular bus here -- plenty of inflation in this country since I lasted visited!

Added: With you 1.3 million in shares, the NTA will see you as a wonderful catch. Surely they have marked your visit on their calendar!

[Morton]

Like Super Grover I am fearful about cashing in my assets, although I also don't plan to at present. For better or worse I'm just going to leave them as they are until I am ready to retire then I will go back home and live for a while then cash them in when I no longer have any Japanese tax liability.


Does anyone know how Japan treats joint accounts (either or survivor scenario)?

[skimpy]

I am in Australia now. You could do a LOT worse than living in Gold Coast or Southport, but damn, it costs $4-$6 for a regular bus here -- plenty of inflation in this country since I lasted visited!

Inflation in Australia has been running at around 3.5% and the Aussie dollar has more than doubled its strength against the greenback in the past 10-11 years but the tide is turning. It's no longer the holiday place it used to be and tourism has suffered greatly as a result.

[minamon]

I find myself approaching the 5 year mark. Although I would like to continue staying on I really can't see it happening. I would be interested to know if you agree with my thinking.

I am 43, Australian non-resident status, staying in Japan on a spouse visa. .....

Now, I realise that from the 5 year mark, my worldwide income will need to be disclosed if I stay in Japan. Would this mean the income that I am required to declare on the Aust tax return, ie $18000 in interest earnt of which $1800 tax is paid, or would I also need to disclose all the income earned in Australia, ie include the dividends, with the imputation credits?

I realise that I will need to get professional advice on it, but just looking for others opinions first.

Re-reading your post, I think (in my non-professional opinion) that you need to be carefull to declare all worldwide income *that is related in any way to significant electronic transfers you have made, or will make, into or out of Japan*, i.e., if there is trail to a foreign bank account or similar, you can be asked to show the account details, which might show not only the transfers, but also other income (interest etc.).

If you have no electronic transfers in or out of Japan, then disclosing is up to you. (i.e. I dont think the J tax office can know anything about it.)

[jrp]

I take it erice had second thoughts about posting and deleted his message. If so, I felt the same when I was posting last year. I hope he posts to let us know how it pans out.

I make it a habit now of quoting the entire post if I'm replying, and it's interesting, and if no-one else has done it before me. It seems to happen a lot that people delete or edit their posts.

I'd like to hear the outcome for Erice too. Hopefully it turns out well for him (and all the other posters).

This whole topic of tax on overseas income is rather important to a lot of people.

It certainly does look like the J tax office are targeting gaijin who are here for over 5 years.

[jrp]

Re-reading your post, I think (in my non-professional opinion) that you need to be carefull to declare all worldwide income *that is related in any way to significant electronic transfers you have made, or will make, into or out of Japan*, i.e., if there is trail to a foreign bank account or similar, you can be asked to show the account details, which might show not only the transfers, but also other income (interest etc.).

If you have no electronic transfers in or out of Japan, then disclosing is up to you. (i.e. I dont think the J tax office can know anything about it.)

Although the J tax office might do a routine request to the Aussie tax office for background if the J tax office decide to do an audit on his Japanese earnings for some reason.

Although an audit is unlikely if he is not running his own business and is just working for a company where they deduct his tax automatically from his wages (I'm thinking of the earlier post by 'erice' where it sounded like it was a regular business audit as opposed to money transfers that triggered the audit - but they had his home country tax details before the meeting).

[shamar]

Of course get GOOD professional advice. Here is my advice based on my bitter personal experience and that of an Aussie (there are others but you are an Aussie). I would leave Japan. Here is a scenario: If your account is held jointly with your wife, and it has earned enough interest so that it would push your wife above the threshold here (assuming she is not working), then she will be liable for tax and back payments in social security here (assuming you pay for the family). All in all, if I had known what was coming, we might have lived separately with me returning to Canada. Now we are fearful of disposing of some assets (bad time anyway) because it will attract ridiculous tax.

I am in Australia now. You could do a LOT worse than living in Gold Coast or Southport, but damn, it costs $4-$6 for a regular bus here -- plenty of inflation in this country since I lasted visited!

Added: With you 1.3 million in shares, the NTA will see you as a wonderful catch. Surely they have marked your visit on their calendar!

Yes, it seems like leaving Japan is inevitable. I have fought the ATO for 3 years to be classed as a non resident of Aust, finally succeeding, I don't really have the energy for another mob of beauraucrats just going by their books, and still getting it wrong.

I think Thailand might be an option, Australia is certainly not what it used to be, too many people wanting others to support them, not enough getting off ones own aXXes.

Thanks for your thoughts.

[shamar]

Re-reading your post, I think (in my non-professional opinion) that you need to be carefull to declare all worldwide income *that is related in any way to significant electronic transfers you have made, or will make, into or out of Japan*, i.e., if there is trail to a foreign bank account or similar, you can be asked to show the account details, which might show not only the transfers, but also other income (interest etc.).

If you have no electronic transfers in or out of Japan, then disclosing is up to you. (i.e. I dont think the J tax office can know anything about it.)

I am lucky in that I already had the investments when I came back to Japan, I am sure they will line me up once I pass 5 years though, regardless of any money transfers I have made.

[skimpy]

Although the J tax office might do a routine request to the Aussie tax office for background if the J tax office decide to do an audit on his Japanese earnings for some reason.

Although an audit is unlikely if he is not running his own business and is just working for a company where they deduct his tax automatically from his wages (I'm thinking of the earlier post by 'erice' where it sounded like it was a regular business audit as opposed to money transfers that triggered the audit - but they had his home country tax details before the meeting).

That's just wishful thinking. I don't have a business and have been a loyal employee for my local city bouncing from school to school entertaining kids. I also had a substantial amount of money prior to coming to Japan. The NTA have conveniently waited till now to rattle my cage as its approaching the 5 year mark since I bought a house in Japan, which was bought with money from my bank account but joint names are shown on the deed...so they are claiming I gifted my wife half of the house's value. If I had a business, I'd only be audited for 3 years but as I don't it's 5 years. The audit started out on foreign income and investments and now they are digging through every little transaction made.

[minamon]

Although the J tax office might do a routine request to the Aussie tax office for background if the J tax office decide to do an audit on his Japanese earnings for some reason.

I cant imagine "routine requests" to some country's tax office (Australia or elsewhere) to check private data of *their own citizens* to help the economy of a *foreign* country (e.g. Japan) for free (ie the cost of doing searches and collecting data would be borne by Australia; gains would go to Japan).
EDIT - THE ABOVE MAY NOT BE CORRECT -- SEE FOLLOWING POST.

As I mentioned in another post, the only case I know of where this happened, was when the US (and UK/Ger) put the squeeze on Switzerland -- but this was to investigate NOT Swiss citizens, but US, UK, and German citizens with accounts in Suisse. And the countries involved had economic leverage on Swiss banks, who need to do business in the bigger countries.

If there was information sharing between tax offices, I'm sure we would hear about it from rights/privacy groups -- particularly since there is no illegal activity proved. Failure to pay complete Japanese tax on Australian interest gains or income, is surely not illegal in Australia? How Japan taxes it's residents is Japan's business, not Australia's.
EDIT - THE ABOVE MAY NOT BE CORRECT -- SEE FOLLOWING POST.

From reading these posts, as far as I can see, ALL the information that the J tax office has on a resident is from:
detailed examination of all their accounts IN JAPAN +
transfers into and out of Japan +
whatever information the resident voluntarily gives to the Tax Office.
I have not heard of any case where the J Tax office has got information from outside of Japan (unless of course there is some suspected criminal activity, money laundering, etc).

However, when I read an article in the Japanese newspaper every now and then about some Japanese person who is about to be prosecuted for tax evasion by having accounts abroad, I wonder how they were caught out. (About 3 days ago there was an article about a Japanese mgr (retired now) who got stock options etc. when he was working in Credit Suisse (value over 1.3 oku yen in Swiss account) and who is now in Canada (resident?) but will return to Japan to face the music. I guess he must have made some transfer via Japan, because Switzerland would not divulge any information unless they were forced to.

[jrp]

I cant imagine "routine requests" to some country's tax office (Australia or elsewhere) to check private data of *their own citizens* to help the economy of a *foreign* country (e.g. Japan) for free (ie the cost of doing searches and collecting data would be borne by Australia; gains would go to Japan).

Actually information sharing requests on taxpayers are now quite common. When signing Double Tax Agreements there had to be a system of information sharing and both countries had to legislate that they could and would pass (the previously confidential) information of their taxpayers if requested.

The cost of doing the searches is actually very low as tax records are keep on databases and it only takes minutes to click a button that creates the report, then you just attach it to an email - really simple, fast and cheap.

The benefits to each country are are quid pro quo. What the tax departments like the most is the publicity and public mindset it creates in that taxpayers become too afraid to try and buck the system and not pay all the tax that the tax laws say they should. The J tax office love threads like this one.

If there was information sharing between tax offices, I'm sure we would hear about it from rights/privacy groups -- particularly since there is no illegal activity proved. Failure to pay complete Japanese tax on Australian interest gains or income, is surely not illegal in Australia? How Japan taxes it's residents is Japan's business, not Australia's.

You're probably correct in that it is probably not illegal in Australia to not pay Japanese tax on Australian interest gains or income - but I'm not sure on that - but that might change in the near future. However, if the J tax decides you owe them so much, and you cannot change their minds, then you owe that money to the J tax office.

What is starting to be worked out now between various countries is getting other countries tax offices to collect outstanding tax on behalf of other countries.

From reading these posts, as far as I can see, ALL the information that the J tax office has on a resident is from:
detailed examination of all their accounts IN JAPAN +
transfers into and out of Japan +
whatever information the resident voluntarily gives to the Tax Office.
I have not heard of any case where the J Tax office has got information from outside of Japan (unless of course there is some suspected criminal activity, money laundering, etc).

Tax evasion is a criminal activity.

As mentioned earlier - it is very easy for tax departments to share information if there is an agreement between them. It looks like the post by `erice' shows such an example (his original post is deleted, but I quoted it in a post 2011-09-06, 02:09 PM)

Your earlier example of the Swiss banks is not really applicable as the Swiss banks are banks - not tax offices. It is the tax departments who are sharing info, it's not the J tax office asking for info from Aussie banks. The Aussie tax office knows all your bank account details through the amounts of tax that are automatically deducted by the bank for tax on interest earned. If the figure is high enough to be of `interest', the J tax office will ask the Aussie tax office to get all the actual transaction details.

[minamon]

Actually information sharing requests on taxpayers are now quite common. When signing Double Tax Agreements there had to be a system of information sharing and both countries had to legislate that they could and would pass (the previously confidential) information of their taxpayers if requested.

jrp, thanks for correcting my assumptions. I guess the question is then:
-- whether your country has a Double Tax Agreement with Japan
-- whether you have paid tax in your home (or another) country

[Morton]

when I got done last year they had information about the interest I'd received. I can only assume it came from the tax authorities in my country. Curiously although they knew about the interest I'd received they knew nothing about balances or bank account numbers.

[Super Grover]

I cant imagine "routine requests" to some country's tax office (Australia or elsewhere) to check private data of *their own citizens* to help the economy of a *foreign* country (e.g. Japan) for free (ie the cost of doing searches and collecting data would be borne by Australia; gains would go to Japan).
EDIT - THE ABOVE MAY NOT BE CORRECT -- SEE FOLLOWING POST.

As I mentioned in another post, the only case I know of where this happened, was when the US (and UK/Ger) put the squeeze on Switzerland -- but this was to investigate NOT Swiss citizens, but US, UK, and German citizens with accounts in Suisse. And the countries involved had economic leverage on Swiss banks, who need to do business in the bigger countries.

If there was information sharing between tax offices, I'm sure we would hear about it from rights/privacy groups -- particularly since there is no illegal activity proved. Failure to pay complete Japanese tax on Australian interest gains or income, is surely not illegal in Australia? How Japan taxes it's residents is Japan's business, not Australia's.
EDIT - THE ABOVE MAY NOT BE CORRECT -- SEE FOLLOWING POST.

From reading these posts, as far as I can see, ALL the information that the J tax office has on a resident is from:
detailed examination of all their accounts IN JAPAN +
transfers into and out of Japan +
whatever information the resident voluntarily gives to the Tax Office.
I have not heard of any case where the J Tax office has got information from outside of Japan (unless of course there is some suspected criminal activity, money laundering, etc).

However, when I read an article in the Japanese newspaper every now and then about some Japanese person who is about to be prosecuted for tax evasion by having accounts abroad, I wonder how they were caught out. (About 3 days ago there was an article about a Japanese mgr (retired now) who got stock options etc. when he was working in Credit Suisse (value over 1.3 oku yen in Swiss account) and who is now in Canada (resident?) but will return to Japan to face the music. I guess he must have made some transfer via Japan, because Switzerland would not divulge any information unless they were forced to.

Tax offices do share.
Second underlined part: I am a case in point that the Japanese NTA HAS indeed gotten information from outside Japan that, to this day, I do not know how it was found (not illegal, but certainly not at anyone's fingertips).

[skimpy]

In my case information sharing between tax authorities has most definitely taken place. However all they seem to know is the tax I've paid abroad as non-residency tax so now naturally want their share as well. They don't have access to bank transaction details but that's what they are interested in seeing both abroad and in Japan.

[HarryHurry]

Can someone explain HOW you actually show or present the figures concerning earned interest from overseas banks? Just for amounts in bank savings accounts, nothing more complicated. No stocks, shares etc.,

For example I have sent yen converted to relevant overseas currency to a bank account, but with almost zero interest rates it's showing a pittance of interest. Something like, for example, $10 (yeah, 10) per 6 months.

Would I still need to declare THAT? And how? Just convert to yen on the day or whatever then put it on the tax return form? Would any documentation be needed, like a bank statement, or something?

[Majestic]

You would need to declare the income on the Japanese tax forms as "miscellaneous income". You would use the exchange rate of the day the interest was received. I suspect you could also use the average interest rate for the year and the NTA wouldn't be too fussy about it.

But the good news is that if you make less than 20,000,000/year, and you have less than 200,000 in miscellaneous income, you don't need to report the miscellaneous income. In other words, you are exempt from having to report up to 200,000 in miscellaneous income (including foreign bank account interest).

In Japanese for those interested:
http://www.alt-invest.com/qa/tax/1.html

[HarryHurry]

You would need to declare the income on the Japanese tax forms as "miscellaneous income". You would use the exchange rate of the day the interest was received. I suspect you could also use the average interest rate for the year and the NTA wouldn't be too fussy about it.

But the good news is that if you make less than 20,000,000/year, and you have less than 200,000 in miscellaneous income, you don't need to report the miscellaneous income. In other words, you are exempt from having to report up to 200,000 in miscellaneous income (including foreign bank account interest).

In Japanese for those interested:
http://www.alt-invest.com/qa/tax/1.html

Thanks!

That's a relief. I couldn't sleep last night for worrying about some pesky J taxman sniffing around my $10 interest income. I need that the way things are going here...

[Ken44]

...
From reading these posts, as far as I can see, ALL the information that the J tax office has on a resident is from:
detailed examination of all their accounts IN JAPAN +
transfers into and out of Japan +
whatever information the resident voluntarily gives to the Tax Office.
I have not heard of any case where the J Tax office has got information from outside of Japan (unless of course there is some suspected criminal activity, money laundering, etc).
...

Right. Unless the J-tax authorities have reason to suspect you're doing something dodgy my feeling is you don't have much to worry about. I don't believe gaijin teachers for example are being randomly audited and those that were questioned likely had transactions which for various reasons were flagged.

[Morton]

You would need to declare the income on the Japanese tax forms as "miscellaneous income". You would use the exchange rate of the day the interest was received. I suspect you could also use the average interest rate for the year and the NTA wouldn't be too fussy about it.

But the good news is that if you make less than 20,000,000/year, and you have less than 200,000 in miscellaneous income, you don't need to report the miscellaneous income. In other words, you are exempt from having to report up to 200,000 in miscellaneous income (including foreign bank account interest).

In Japanese for those interested:
http://www.alt-invest.com/qa/tax/1.html

Would this be the same for self-employed as a salaryman?

[Ken44]

During Obon, I heard of another 9 year plus foreigner in Nagano, who recently got the innocent sounding questionnaire on transfer of funds. A second follow-up letter has asked him to disclose all foreign interest earning accounts. He does not earn over 8 mil. I am convinced they are tracking and trawling the foreign residents...

More likely it was either the amount or something about the transfer which got him flagged. Not the fact he is a gaijin.

I got nailed 15 years ago by the US tax office (IRS) because of $200 I made one summer vacation in the States which my dumb-___ accountant forget to file.

I was living in Japan and earning around 3.5 million yen teaching. However, I am still required to file US taxes while overseas.

[Majestic]

Would this be the same for self-employed as a salaryman?

No, this is a special exemption for people who have a single source of wage income.

[SantaKraut]

I think one important question hasn't been asked yet.
Do people nailed by the NTA have (substantial)assets in Japan that can be seized upon non-compliance?
Real estate (house(s), land, rental property), business, stocks, bonds, cash in bank account, etc.
If so they(NTA) have leverage if not I imagine they are lot less motivated to hassle people.

[jrp]

I think one important question hasn't been asked yet.
Do people nailed by the NTA have (substantial)assets in Japan that can be seized upon non-compliance?
Real estate (house(s), land, rental property), business, stocks, bonds, cash in bank account, etc.
If so they(NTA) have leverage if not I imagine they are lot less motivated to hassle people.

Good question. I cannot answer for the NTA, but they seem to work much like other countries tax agencies work. So it probably goes something along these lines:

1. establish if a debt to the tax agency exists (this could be all from penalties).
2. try and get the taxpayer to voluntarily pay the outstanding tax. If they can, then case closed.
3. If the tax payer cannot/doesn't pay, then determine what other means can be used where the costs do not outweigh the benefits.

The ways they examine are: forgiving the debt (only if there is no money to get), get the tax payer to enter an arrangement to pay installments over time, get tax payers to 'voluntarily' sell there assets like land etc, seize bank account/cash assets, bankrupt or liquidate the individual or business to have asset sale proceeds cover the debt.

At the same time that they look at what debt they can recover, they also look if it is worthwhile prosecuting the tax payer for evasion (bankruptcy is a recovery mechanism rather than a punitive measure) - they usually only do this as a punishment if they think there is an ongoing risk of non-payment, or to set an example to scare other people into compiling. The legal costs of this is quite prohibitive, so some tax departments go this path less than others.

So to answer your question - yes they will usually hassle you less if you have no means of paying - but they still have to do an audit and investigation to see what your worth is, and if you deliberately tried to evade the taxes, then they may decide to use you as an example. It's a case by case basis decision.

[Super Grover]

I think one important question hasn't been asked yet.
Do people nailed by the NTA have (substantial)assets in Japan that can be seized upon non-compliance?
Real estate (house(s), land, rental property), business, stocks, bonds, cash in bank account, etc.
If so they(NTA) have leverage if not I imagine they are lot less motivated to hassle people.

I only know from one case, so this can't be extrapolated.
An Aussie owed and still owes a lot. He had and still does send almost all of his money back there and was in the position of not having enough to pay. As he is still here, he was hassled enormously to bring money from there there to pay his "debts," which is to say all of the outrageous penalties. Now his salary has been garnisheed and the interest meter is running. The NTA does have one more card up their sleeve (rarely played except in cases of huge fraud or evasion with criminal intent), and that is prison.

[SantaKraut]

I highly doubt that these “shake downs” are done at random.
The Japanese are consummate planners, they leave nothing to chance and no bureaucrat is allowed / able to improvise or make decisions on hunches.
Therefore I believe they have an action plan with which they can reach an annual financial target, as in money collected from gaijins who‘s been here long enough and might have acquired assets.

This flowchart might be one approach:

I choose 6 years as the residency threshold because we file taxes for the previous year, so filing taxes after being here for 5 years would mean the income for year 4.
The age limit of 30 is arbitrary however if a foreigner’s been living in Japan for 5 years and he/she is under 30 that means he/she came over fresh out of university which would mean he/she had earned very little money and probably doesn't have a high paying job in Japan either.

The income limit of 5 mil is again arbitrary, however given the high cost of living in Japan and young people’s chronic inability to save anything substantial while living on their own would suggest that earnings under that amount would not allow a person to save significant amounts. Your mileage, of course, may vary.
The "trigger event" of course means a large cash remittance in / out of Japan, large cash deposit, etc.
Amend as you wish.

[Super Grover]

ABSOLUTELY they have targets set! This is a given. And not at random, either. This much I wrote much earlier on in the thread. I would certainly think that there are trigger events such as large and/or frequent remittances, but they may also investigate people within a category/sector first and look for such events later. That's what I would do if I were them.

I did remit, yet the first question they asked of me (I have written this much earlier on) was about an investment they only could have found about by directly asking Canadian tax authorities (I had paid Cdn. tax). That is to say they did not start by asking about remittances. After that I got the clear sentence about how failing to disclose income on any income-earning assets is a crime (got that one shown to me in English, too). Well, I will never forget, but I have moved on. The question I have posed on occasion is how to make money safely going forward.

[tarzan's nuts]

Makes me wonder when I will get audited. I currently send money to an offshore fund through a visa card every month, but that fund matures next year. From the sounds of it, if I send the money to my bank account in Canada, I should pay a non-withholding tax on the profit to the Canadian tax authorities, and then report the income from profit to the Japanese authorities, as it should be over 200,000 yen ?

However, this will be the first time I have reported any income outside of Japan to the GTA, so I will now be on file with my Canadian bank account on file as well. Meaning I will be in the same boat as Super Grover , re; how do I deal with future income outside of Japan? Report everything from now on?

What about the profits I made from Japanese income overseas BEFORE I was PR, and sent them to the same account in Canada. This would be from 5-6 years ago and was not on PR but had been in Japan for 10 years at that point.

This sounds like I should keep hiding the Canadian account unless I get audited and then be prepared to pay the penalty. There is currently not enough interest being made on the Canadian account to worry me, but dropping a large amount of cash from an offshore investment might be the trigger for the audit as it will show previous large cash deposits from offshore funds.

[ozzijp]

I highly doubt that these “shake downs” are done at random.
The Japanese are consummate planners, they leave nothing to chance and no bureaucrat is allowed / able to improvise or make decisions on hunches.
Therefore I believe they have an action plan with which they can reach an annual financial target, as in money collected from gaijins who‘s been here long enough and might have acquired assets.

This flowchart might be one approach:

I choose 6 years as the residency threshold because we file taxes for the previous year, so filing taxes after being here for 5 years would mean the income for year 4.
The age limit of 30 is arbitrary however if a foreigner’s been living in Japan for 5 years and he/she is under 30 that means he/she came over fresh out of university which would mean he/she had earned very little money and probably doesn't have a high paying job in Japan either.

The income limit of 5 mil is again arbitrary, however given the high cost of living in Japan and young people’s chronic inability to save anything substantial while living on their own would suggest that earnings under that amount would not allow a person to save significant amounts. Your mileage, of course, may vary.
The "trigger event" of course means a large cash remittance in / out of Japan, large cash deposit, etc.
Amend as you wish.

Great chart but I think that "Assets Abroad and/or Regular Remittances Abroad" rather than "Assets in Japan" is more appropriate. They may tell you there is a 1 million yen threshold on transfers but....