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Be wary of your investments -- the TAXMAN is watching

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  • Originally posted by Keeptrying View Post
    I'm also getting confused over the info that seems contrary at times here.

    You say:
    We have to pay tax on our worldwide income. But if I send 1million yen overseas to regular (very low % rate) savings account, that isn't 'income', right? But interest earned from it would be 'income', right? The 1m sent is FROM Japan and tax-paid, so shoot me for my simple logic, it would only be once again taxable in Japan in terms of interest it gained.

    You say:
    (And this totally baffles me with it's odd logic) We should pay tax on worldwide income (not assets i.e. the 1m sent from Japan), BUT we do not have to DECLARE assets (the 1m) unless asked?!? If the law is that we are taxable, why would it be OK to go years not declaring and then suddenly declare when 'asked'. And then, again, would we be talking the whole 1m (assets) and/or just any amount the 1m has earned?

    Can anyone shed a bit more light on this maze of responses?
    You send after-tax 1,000,000 to wherever. You earn some interest. In wherever, you pay tax on that interest (withholding tax). However, it is highly likely that the tax you paid wherever is lower than it would be versus when Japan considers that interest earned as income (i.e., same rate as your salary). You have to pay the difference using their (NTA's) formula.

    In my case, through a variety of investments, I earned interest income -- quite a bit. It was taxed in Canada. I thought all was well until one day a friend called me with a heads up. To my horror I learned that Japan would want to tax a portion at 33% and another portion at 23%. If I were to be audited (and of course it is ongoing), I would have to pay the difference AND late penalties. As of yesterday, I was told (shown) that the portion of tax owed (in arrears according to them) in a given year (say 2008) that was up to 500,000 yen would be penalized at 15% but the amount over that would be penalized at 20%!

    After 5 years, you have to pay tax on all worldwide income. I personally have not confirmed anything about stating or not stating what assets we have. I can say that in the audit, they are going over my transfers and general account activity line by line and in quite a few instances have asked me to confirm what this and that amount were. I have no choice about answering -- I have asked. In the event that those amounts moved again, they have asked about them. Basically what I wrote above -- they are definitely after an easy tax grab, which is outrageous to me, but just as bad, they are pinpointing exactly how much I have and where I have it. I hope you never have to experience a group of oily-skinned, cheap, black Aoyama-suited functionaries dissecting what took years to put together.

    Comment


    • Originally posted by Keeptrying View Post
      I'm also getting confused over the info that seems contrary at times here.

      You say:
      We have to pay tax on our worldwide income. But if I send 1million yen overseas to regular (very low % rate) savings account, that isn't 'income', right? But interest earned from it would be 'income', right? The 1m sent is FROM Japan and tax-paid, so shoot me for my simple logic, it would only be once again taxable in Japan in terms of interest it gained.

      You say:
      (And this totally baffles me with it's odd logic) We should pay tax on worldwide income (not assets i.e. the 1m sent from Japan), BUT we do not have to DECLARE assets (the 1m) unless asked?!? If the law is that we are taxable, why would it be OK to go years not declaring and then suddenly declare when 'asked'. And then, again, would we be talking the whole 1m (assets) and/or just any amount the 1m has earned?

      Can anyone shed a bit more light on this maze of responses?
      I've been in Japan too long as I've lost my ability to write clearly, sorry.

      Your legitimate savings are not double-taxed but should you earn money on these savings then that income is taxed. If I had 10000 USD of savings in a bank and I earn 250 USD of interest then I should declare this interest and pay tax on it.

      The amount and rate of tax you have to pay will also depend on the type of income earned. Some are added to your income (which may be a good or bad thing) and some are taxed at a fixed rate.



      The second point is something I came across online. We can be fined for not answering questions and not providing documents to the NTA regarding our assets. The fine is a fixed amount but then the NTA have the ability to hurt you in other ways. Personally they didn't ask me about any other assets I have. They wanted but in the end didn't require me to provide documents and generally weren't as anal about things as I had imagined (at least the boss of the two who visited me was)



      There does seem to be the law and then there is the reality. And in reality the NTA are people and all people are different. They, or at least some of them, are open to pleas, emotions and mitigation. They seem to have the authority to come to a compromise with individuals. So I guess things can be done differently and we can be told different things. My experience and some of the other experiences do seem to differ in some ways.

      Comment


      • Is the amount you owe on overseas assets the after tax amount?

        For example, you make $20,000 in foreign investments and pay tax $3000 in tax to your home government (US, UK etc). Will the J-government tax a percentage of the remaining $17,000, or the original $20k?
        Last edited by Teacher101; 2010-12-23, 05:56 PM.

        Comment


        • Unless I'm reading things incorrectly the Japanese government wants to tax any funds that may be accruing interest in banks or investment plans that you may have overseas. This policy is in line with that of the US in regards to its citizens.

          I'm unsure on the IRS's policy on assets (houses, businesses, investment properties, motor vehicles etc) purchased overseas and subjected to taxation in foreign countries but, it seems that the Japanese government wishes to tax these items as well.

          If you're a Canadian best to check here http://www.fin.gc.ca/treaties-conven...japan_-eng.asp

          If you're a Yank http://www.irs.gov/businesses/intern...169530,00.html

          If you're a Brit (you should know the answer already) here http://www.hmrc.gov.uk/international/japan-index.htm

          Comment


          • Motor vehicles???

            You mean if I had a car in the US (I dont), I could be assessed a road tax for it by Japan???

            A motor vehicle is a money pit, not an investment...

            Comment


            • Ok. American teacher in Japan files 2010 US taxes.

              J-salary was $88,000 which is under the foreign exclusion rate so that's covered.

              He sells U.S. stock A makes $30,000

              He sells U.S. stock B loss $31,000

              He pays no US taxes because he had a loss of $1000 for the year.

              NTA decides to contact the U.S. IRS and look into his overseas earnings.

              Is Mr. Yank in trouble?

              Comment


              • Sounds like this is becoming more confusing than it actually has to be. The only thing Japan cares about (and the only thing the US cares about) is your income*. Income is wages, rents, interest, dividends, royalties, capital gains, gambling winnings, etc.... Basically any increase in your cash position will be taxed by NTA (or the IRS).

                As Iago says, the NTA doesn't asses a tax on the amount of cash in your account, they only assess a tax on the interest. In regards to the speculation that they do this to discourage foreign investment, I would suggest that the NTA actually benefits greatly from increased collections from interest-bearing accounts overseas. I would also suggest that even with the higher tax rate, investors are also better off putting their money in some overseas accounts. For example, even at the highest tax rate (basically 50% here in Japan), an overseas savings account paying, say, 4% interest (Australia) will net you far more money than a Japanese savings account earning, say, .2% interest at a relatively benign tax rate. In other words, you'd be foolish to assume that you are better off investing in a Japanese savings account. Don't freak out over the tax rates until you break out a calculator and figure out your net income first.**

                I've never heard of the NTA assessing a tax on cars, boats US property, stocks, cash, comic books, baseball cards, gold jewelry, or any other assets. Selling assets for a profit will attract a tax, and sometimes importing them into Japan will attract a tax, but just holding on to them doesn't initiate a taxable event. They want to know about your overseas accounts because they want to verify that you've actually been paying the required taxes on any interest the accounts earned.

                All taxpayers in Japan earning more than 20,000,000 yen have to report their assets and liabilities to the NTA. And of course, all US taxpayers have to report their foreign accounts if the value of those accounts is over $10,000 (the hateful FBAR document). But reporting these assets is different from having to pay taxes on these assets.

                *Bringing money into Japan is a tax-event for some non-permanent residents. Check the tax guide for foreigners for more info.

                ** Actual net earnings in your functional currency will of course depend on the exchange rates. In other words, your mileage may vary.

                Ken44 - you're good to go (assuming the NTA knows about your overseas accounts - if any). But you will want to claim the loss on your Japanese taxes, so you should fill out the individual income tax form. You can't apply the loss to your income this year, but you can use it to offset any gains in future years (up to 3 years).

                Comment


                • Originally posted by Majestic View Post
                  Sounds like this is becoming more confusing than it actually has to be.
                  Agreed.

                  I think I'll stick to my old system:

                  "Do you have anything to declare?"
                  "No."

                  Comment


                  • Originally posted by Majestic View Post
                    Sounds like this is becoming more confusing than it actually has to be. The only thing Japan cares about (and the only thing the US cares about) is your income*. Income is wages, rents, interest, dividends, royalties, capital gains, gambling winnings, etc.... Basically any increase in your cash position will be taxed by NTA (or the IRS).

                    As Iago says, the NTA doesn't asses a tax on the amount of cash in your account, they only assess a tax on the interest. In regards to the speculation that they do this to discourage foreign investment, I would suggest that the NTA actually benefits greatly from increased collections from interest-bearing accounts overseas. I would also suggest that even with the higher tax rate, investors are also better off putting their money in some overseas accounts. For example, even at the highest tax rate (basically 50% here in Japan), an overseas savings account paying, say, 4% interest (Australia) will net you far more money than a Japanese savings account earning, say, .2% interest at a relatively benign tax rate. In other words, you'd be foolish to assume that you are better off investing in a Japanese savings account. Don't freak out over the tax rates until you break out a calculator and figure out your net income first.**

                    I've never heard of the NTA assessing a tax on cars, boats US property, stocks, cash, comic books, baseball cards, gold jewelry, or any other assets. Selling assets for a profit will attract a tax, and sometimes importing them into Japan will attract a tax, but just holding on to them doesn't initiate a taxable event. They want to know about your overseas accounts because they want to verify that you've actually been paying the required taxes on any interest the accounts earned.

                    All taxpayers in Japan earning more than 20,000,000 yen have to report their assets and liabilities to the NTA. And of course, all US taxpayers have to report their foreign accounts if the value of those accounts is over $10,000 (the hateful FBAR document). But reporting these assets is different from having to pay taxes on these assets.

                    *Bringing money into Japan is a tax-event for some non-permanent residents. Check the tax guide for foreigners for more info.

                    ** Actual net earnings in your functional currency will of course depend on the exchange rates. In other words, your mileage may vary.

                    Ken44 - you're good to go (assuming the NTA knows about your overseas accounts - if any). But you will want to claim the loss on your Japanese taxes, so you should fill out the individual income tax form. You can't apply the loss to your income this year, but you can use it to offset any gains in future years (up to 3 years).


                    OK, I kind of like this. I can follow it, mostly.

                    Please nobody add another word.

                    Comment


                    • Originally posted by Majestic View Post
                      Ken44 - you're good to go (assuming the NTA knows about your overseas accounts - if any). But you will want to claim the loss on your Japanese taxes, so you should fill out the individual income tax form. You can't apply the loss to your income this year, but you can use it to offset any gains in future years (up to 3 years).
                      My situation has to do with rental income. I gross maybe $75,000 a year but after my accountant gets done I'm in the red and net nothing. Write-offs are legit and verifiable. I haven't paid US taxes for years.

                      So.... if the NTA were to audit me I don't know where it says I have to bring up the fact I own property. I only report income earned.
                      Last edited by Ken44; 2010-12-23, 09:57 PM.

                      Comment


                      • Originally posted by Teacher101 View Post
                        Is the amount you owe on overseas assets the after tax amount?

                        For example, you make $20,000 in foreign investments and pay tax $3000 in tax to your home government (US, UK etc). Will the J-government tax a percentage of the remaining $17,000, or the original $20k?
                        I can answer this easily since I am experiencing it. You get credit for the tax paid in another place. It may be 100%, maybe not. They have a formula. I got 100% on certain investments (not dealt with other ones, so can't answer about those -- obviously). The J govt will say this: you earned 20K. It is salary here. They tack it on to your existing salary for that year. You are then in whatever tax bracket here and are assessed accordingly. Then they give you the credit. And add all of the penalties.

                        Comment


                        • Originally posted by Teacher101 View Post
                          Motor vehicles???

                          You mean if I had a car in the US (I dont), I could be assessed a road tax for it by Japan???

                          A motor vehicle is a money pit, not an investment...

                          World INCOME. Is it a hypothetical taxi? As a NR who has broken ties with your country in order to be one (at least in Canada) you should not have a car

                          Comment


                          • Originally posted by Keeptrying View Post
                            Agreed.

                            I think I'll stick to my old system:

                            "Do you have anything to declare?"
                            "No."
                            Exactly. Just don't draw attention to yourself and you should be fine. I don't know why the OP and a few of his buddies suddenly found themselves audited but I don't believe NAT is deliberating hunting for gaijins. The money just isn’t there. I know some people might think earning 7-9- million yen is a lot and it is pretty good for a gaijin teacher but in the overall scheme of things it’s hardly the kind of income NAT would scrutinze unless they had a good reason.
                            Last edited by Ken44; 2010-12-23, 10:27 PM.

                            Comment


                            • Originally posted by Ken44 View Post
                              Exactly. Just don't draw attention to yourself and you should be fine. I don't know why the OP and a few of his buddies suddenly found themselves audited but I don't believe NAT is deliberating hunting for gaijins. The money just isn’t there. I know some people might think earning 7-9- million yen is a lot and it is pretty good for a gaijin teacher but in the overall scheme things it’s hardly the kind of income NAT would scrutinze unless they had a good reason.
                              I do not know why either and I said that. I wish you were correct and then I could just know it is a figment of my imagination. I am set to lose, it seems, a whole year of GROSS salary in payments. One of the others is about the same. THEREFORE as a courtesy I brought it up. I think for the NTA it is easy to do.

                              Comment


                              • Originally posted by Keeptrying View Post
                                I'm also getting confused over the info that seems contrary at times here.

                                You say:
                                We have to pay tax on our worldwide income. But if I send 1million yen overseas to regular (very low % rate) savings account, that isn't 'income', right? But interest earned from it would be 'income', right? The 1m sent is FROM Japan and tax-paid, so shoot me for my simple logic, it would only be once again taxable in Japan in terms of interest it gained.
                                Think of it this way. Assets are something you own, income is something you make. You own 1 million yen, you made 100,000 yen in interest. Interest, such as bonds counts every year, gains on things like stocks or property are usually only counted when you sell, therefore solidifying the profit/loss. I am basing this on Canadian tax law, but can pretty much tell you that gains will only be taxed when solidified in Japan. Imagine having to pay taxes on your stocks every year if they went up 20% with your entire net worth in the stock market when you are 55 years old, or whatever age you have built up considerable wealth. That would be setting the markets up for mini crashes at tax time every year, well, this might be a bit hypothetical in Japan

                                I have to admit I am surprised so many expats here know so little about this. There are also possible consequences for some of you back home as well, especially for those of you who only stay for a couple of years. Just because you live in another country for a few years doesn't mean you don't have to file tax returns or pay tax in your home country. Did you sever almost all your ties with your home country? Do you own property, who is living in it. Do you keep memberships to clubs, bank accounts, drivers license, health cards etc. Most of your home countries also want you to declare your worldwide income and pay any difference in tax to them if there is one.

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