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Be wary of your investments -- the TAXMAN is watching

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  • Originally posted by SantaKraut View Post
    I highly doubt that these gshake downsh 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es been here long enough and might have acquired assets.

    This flowchart might be one approach:
    [ATTACH]15371[/ATTACH]
    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fs 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fs 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.
    - Of course you can chose "gaijin", but the income tax audit has nothing to do with this. According to my CPA (foreign based, one of the largest in Japan tax consultancies) Japanese nationals are actually more often audited. It's a hassle for them to check foreign accounts and deal with non Japanese speakers.
    - The trigger event for an audit is more often in case of Japanese nationals receiving payments from abroad than sending, and for foreigners notification from their national authorities to the NTA. In particular, US, UK and Australian nationals should be aware that their income might be reported any time.
    - The second most usual trigger point is the level of income. According to CPA taxable income above 50 MJPY, for example, is regularly audited, something like every 5 years. I don't think they care about annual incomes of 5 MJPY. It's not worth the time for them to audit such income earner - unless you get reported by your national tax office of course.

    For those who are "concerned" I can only second on the recommendation in the initial post of this thread: Contact a CPA specialized on income tax audit.

    Originally posted by tarzan's nuts View Post
    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.
    Your PR status (I also have it) is irrelevant for the NTA. They only care about the period of your residency. After 5 years all your income domestic and abroad has to be declared and is taxable in Japan. And whatever you have transferred abroad has been reported by the bank to your tax office.
    Last edited by chainbolt; 2011-10-04, 06:42 AM.

    Comment


    • Originally posted by chainbolt View Post
      - Of course you can chose "gaijin", but the income tax audit has nothing to do with this. According to my CPA (foreign based, one of the largest in Japan tax consultancies) Japanese nationals are actually more often audited. It's a hassle for them to check foreign accounts and deal with non Japanese speakers.
      - The trigger event for an audit is more often in case of Japanese nationals receiving payments from abroad than sending, and for foreigners notification from their national authorities to the NTA. In particular, US, UK and Australian nationals should be aware that their income might be reported any time.
      - The second most usual trigger point is the level of income. According to CPA taxable income above 50 MJPY, for example, is regularly audited, something like every 5 years. I don't think they care about "pocket money" of 5 MJPY annually. It's not worth the time - unless you get reported by your national tax office of course.

      For those who are "concerned" I recommend to contact a CPA specialized on income tax audit. This is what I did.



      Your PR status (I also have it) is irrelevant for the NTA. They only care about the period of your residency. After 5 years all your income domestic and abroad has to be declared and is taxable in Japan. And whatever you have transferred abroad has been reported by the bank to your tax office.
      The 3 underlined parts:
      1) Yes, it does. Foreigners are being targeted. They are "easy marks." Or at least easier. It is NOT a coicidence that suddenly in 2010 there was a spike in the number of foreigners being audited. Since I started this thread, you'd be surprised how many off board messages from foreign nationals I have received being audited or by those knowing someone who has been audited.
      2) Absolutely, given that we account for like 2% of the population! A Japanese friend was also audited (not a super high earner, but over 10 million). It was he who said it is all about quotas and bringing their quota in on time. I guess Japanese would have better networks about this than us.
      3) I think it would depend on frequency and amount. But, yes, a largish amount will be reported -- my mistake was to do that, unaware what lay in store for me.


      Beautiful autumn weather, go out and have a beer on a deck or at a cool patio. Think mellow thoughts!!!!!!

      Comment


      • Originally posted by Super Grover View Post
        Since I started this thread, you'd be surprised how many off board messages from foreign nationals I have received being audited or by those knowing someone who has been audited.
        I don't doubt this at all.

        Originally posted by Super Grover View Post
        statute of limitations on what? the authorities can choose to audit you tomorrow if they wish on your activities for the past 5 years, at least. i know nothing about what limitations there might be regarding "non payment" of tax or how far back they can audit. in the cases above, both were for 5 years.
        Sorry, if this has been explained already, but the statute of limitation for tax payments is 7 years in Japan. They can claim back 7 years, although a regular audit is only covering 5 years. . No idea about the "criminal" side of this.

        Best English site I know about the procedures, with links to relevant laws, NTA regulations, some courts rulings, double taxation treaties, etc as well as a detailed explanation about the penalties and possible criminal charges:

        http://japantax.org/
        Last edited by chainbolt; 2011-10-04, 07:02 AM.

        Comment


        • Originally posted by chainbolt View Post

          Best English site I know about the procedures, with links to relevant laws, NTA regulations, some courts rulings, double taxation treaties, etc as well as a detailed explanation about the penalties and possible criminal charges:

          http://japantax.org/
          Thanks for the link.

          I notice that Jersey, Isle Of Man (UK) etc. have Tax Agreements with Japan for "the Exchange of Information".

          That sounds a bit weird -- these offshore centres depend on attracting international deposits by NOT taxing at source. So the Jersey and IOM governments have no information to offer about taxes paid!

          If they start forcing their banks to disclose customer names and addresses, then their banking business will go downhill fast.

          Assuming they wont do that, it would seem best to keep funds offshore until ready to use, then transfer and pay tax (with a legitimate story of how you came to have the funds).

          Comment


          • Originally posted by minamon View Post
            Thanks for the link.

            I notice that Jersey, Isle Of Man (UK) etc. have Tax Agreements with Japan for "the Exchange of Information".

            That sounds a bit weird -- these offshore centres depend on attracting international deposits by NOT taxing at source. So the Jersey and IOM governments have no information to offer about taxes paid!

            If they start forcing their banks to disclose customer names and addresses, then their banking business will go downhill fast.

            Assuming they wont do that, it would seem best to keep funds offshore until ready to use, then transfer and pay tax (with a legitimate story of how you came to have the funds).
            They mightn't be reporting now but I think it's just a matter of time before they will have to. It wouldn't take much for some information to be leaked just a disgruntled employee. I'd give it 10 years before they are made to conform.

            Comment


            • I have two questions.


              1. I have PR. If I went back to my home country and cashed my investments, with the eventual intention of coming back to Japan, how long would I have to be away so that I don't legally have to pay Japanese tax?

              2. How does the NTA view either or survivor accounts?

              3. I have officially changed my banking details to my sister's address and pay tax on the interest as if I'm living there (it's way better for me to pay in my home country than Japan). I have a common name. How would the NTA know that this is me? I intend to do this with all my investments a couple of years before I cash them in.

              It's not ideal but I feel really bitter about last year and am more than prepared to move back home and pay the taxes in my home country.

              Comment


              • Originally posted by Morton View Post
                I have two questions.


                1. I have PR. If I went back to my home country and cashed my investments, with the eventual intention of coming back to Japan, how long would I have to be away so that I don't legally have to pay Japanese tax?

                2. How does the NTA view either or survivor accounts?

                3. I have officially changed my banking details to my sister's address and pay tax on the interest as if I'm living there (it's way better for me to pay in my home country than Japan). I have a common name. How would the NTA know that this is me? I intend to do this with all my investments a couple of years before I cash them in.

                It's not ideal but I feel really bitter about last year and am more than prepared to move back home and pay the taxes in my home country.
                I think you're home free after five years. Although I don't know how NTA would know what you're up to unless you were sending large sums of money back to Japan.

                If you die while living in the States for example I think your wife needs to have lived in America a total of five years for the income to be considered free and clear by the NTA.

                Comment


                • Originally posted by Morton View Post
                  I have two questions.


                  1. I have PR. If I went back to my home country and cashed my investments, with the eventual intention of coming back to Japan, how long would I have to be away so that I don't legally have to pay Japanese tax?

                  It's not ideal but I feel really bitter about last year and am more than prepared to move back home and pay the taxes in my home country.

                  I can only answer Q1. I asked this question during my audit and was told I'd need to spend the whole of one financial year out of the country. That's what I understood my auditor to have said. Perhaps he was referring to just that year period but my question was, how do I lose my PR status. Would like to know others opinions.

                  I understand why you'd rather it taxed at your home country rather than Japan as certain tax breaks you get there aren't recognized by the Japanese tax authorities. Especially with the taxing on mutual funds, I didn't think I had anything to declare as I hadn't touched the funds in 10 years. However as the redistributions deduct a small percentage on some parts of the re-distribution (10% as I'm a non-resident by my home country), they alerted the NTA (or visa versa) that there's some additional tax to be sourced. Only about half of the re-distribution is taxed in my home country as parts within the re-distribution have had tax deducted already or aren't liable for taxing however the NTA don't recognize these and want to tax the full redistribution, treating it like a stock dividend. They will only give credit for the small amount of tax already paid. By taxing the whole re-distribution will be actually paying tax twice on parts of it. And, it'll mean I'll be paying more in tax than what some of these investments have appreciated by in over the 10 years I've had them.

                  I'd be very pleased to hear if someone has been able to reduce the taxable amount on their re-distributions. I only wish the NTA would tax these fairly. I can understand they don't look fondly on foreign investments but they don't offer anything within their jurisdictions that are appealing.

                  Going forward, I can't see any point in holding mutual funds abroad unless they are in a wrapper style investment. Within such, the way I understand it is you don't have any tax liability until you withdraw from it or close it. Anyone care to comment?

                  Comment


                  • Originally posted by skimpy View Post
                    I can only answer Q1. I asked this question during my audit and was told I'd need to spend the whole of one financial year out of the country. That's what I understood my auditor to have said. Perhaps he was referring to just that year period but my question was, how do I lose my PR status. Would like to know others opinions.

                    I understand why you'd rather it taxed at your home country rather than Japan as certain tax breaks you get there aren't recognized by the Japanese tax authorities. Especially with the taxing on mutual funds, I didn't think I had anything to declare as I hadn't touched the funds in 10 years. However as the redistributions deduct a small percentage on some parts of the re-distribution (10% as I'm a non-resident by my home country), they alerted the NTA (or visa versa) that there's some additional tax to be sourced. Only about half of the re-distribution is taxed in my home country as parts within the re-distribution have had tax deducted already or aren't liable for taxing however the NTA don't recognize these and want to tax the full redistribution, treating it like a stock dividend. They will only give credit for the small amount of tax already paid. By taxing the whole re-distribution will be actually paying tax twice on parts of it. And, it'll mean I'll be paying more in tax than what some of these investments have appreciated by in over the 10 years I've had them.

                    I'd be very pleased to hear if someone has been able to reduce the taxable amount on their re-distributions. I only wish the NTA would tax these fairly. I can understand they don't look fondly on foreign investments but they don't offer anything within their jurisdictions that are appealing.

                    Going forward, I can't see any point in holding mutual funds abroad unless they are in a wrapper style investment. Within such, the way I understand it is you don't have any tax liability until you withdraw from it or close it. Anyone care to comment?
                    Not too sure on where your country of origin is, but a Family Trust does this.

                    It's probably something you should have set up before coming to Japan though (or it would have made it easier anyway).

                    Comment


                    • Originally posted by jrp View Post
                      Not too sure on where your country of origin is, but a Family Trust does this.

                      It's probably something you should have set up before coming to Japan though (or it would have made it easier anyway).
                      Another possible, unless you want to stay indefinitely in Japan, are "zero bonds". There is no yield payment until the maturity date, and consequently no tax to pay (neither in Japan nor in the home country) until this date.

                      Comment


                      • Originally posted by chainbolt View Post
                        Another possible, unless you want to stay indefinitely in Japan, are "zero bonds". There is no yield payment until the maturity date, and consequently no tax to pay (neither in Japan nor in the home country) until this date.
                        Not true in the USA.

                        Comment


                        • Originally posted by chainbolt
                          Interesting. Did not know this. But it is true in Japan and in Germany: The income from a zerobond is taxed as capital gain in the year the bond matures.
                          I wonder how they would tax a zerobond in the US, while the bond is running. There is no income.
                          In the US zero-coupon bonds are taxed yearly as a percent of the total income. Only I Savings Bonds are taxed only when they mature, but they have low yearly buy limits and require a US address.

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                          • SG, clear your inbox. Tax type question

                            Comment


                            • Originally posted by Super Grover View Post
                              I say do whatever you can that won't harm you in order to avoid taxes. People work hard, why should they pay a huge percentage to a govt. which is bloated and incompetent!
                              Because they need the money to wage war/future wars....?

                              Comment


                              • 5 Years

                                Does anyone have any experience with how the 5 year rule works?

                                For instance, if I moved to Japan on July 1, 2006 when would I be liable for taxes on worldwide income?
                                a) January 1, 2011
                                b) July 1, 2011 (Pay only half a years tax on worldwide income for 2011)
                                c) January 1, 2012


                                Any help is appreciated.

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