Be wary of your investments -- the TAXMAN is watching

[gaijin ga iru]

This is quite the illuminating thread. Regardless of how long I might live in Japan, I despise the idea of either country digging through my assets based in the other country. I don't see why my 401(k) account that I built as a US citizen working for a US company in the US should be any of Japan's business (or vice versa). I wonder about the potential for Japan to come up with a tax law that would hamstring my tax shelters in the US (like taxing my 401(k) earnings yearly, rather than at distribution). Hopefully the tax treaties prevent that sort of thing. It seems that having a good accountant and tax attorney is a must.

I fully agree that it's galling to be audited by a government that would stand no chance of surviving such an audit.

[chainbolt]

This may have been posted earlier but anyway here is "2011 Income Tax Guide For Foreigners". Well worth trying to struggle through.

http://www.nta.go.jp/tetsuzuki/shink...011/pdf/43.pdf

Now does anyone know anything about:

Special credit for specified housing improvements
Special credit for anti-earthquake improvement made to an existing house
Special credit for digital certificates etc

and

deductions for premiums paid to qualified individual pension plans


The guide is very vague and refers to other publications in Japanese for details. I'll track them down and get a translation but in the meantime does anyone know the gist of any of these? Even basic stuff like what proportion of the cost of improvements can be claimed.

The guide is just a guide. It cannot replace qualified advise from a tax consultant. I recently stumbled about the deductions for premiums paid for qualified pension plans. Finally I was told only Japanese pension plans qualify, and not all of them, and it becomes even more difficult if it is about the taxation of your retirement income. They have various tax rates, and the reduce ones are only possible for public pensions. if you get a pension from your previous employer or an insurance, the regular tax rates apply (without the employment credit).

The other thing that strikes me is that the double taxation issue is handled, as people have said, via a tax credit. First you calculate your tax at 20% of your interest and then you can claim a credit for the 10% you might have paid in the UK. Now it is possible to either pay 10% at source and claim it back at the end of the tax year due to your personal allowance or have it paid gross because there is no way your PA threshold will be exceeded. If you pay it at source and then later claim it back then you could presumable claim a credit in Japan for that 10% because you have paid it. The fact that it is later refunded is a separate issue stemming from allowances under the UK system. Or not? Does that sound like it might fly?

That point, I don't understand.

[Brown Cow]

This is quite the illuminating thread. Regardless of how long I might live in Japan, I despise the idea of either country digging through my assets based in the other country. I don't see why my 401(k) account that I built as a US citizen working for a US company in the US should be any of Japan's business (or vice versa). I wonder about the potential for Japan to come up with a tax law that would hamstring my tax shelters in the US (like taxing my 401(k) earnings yearly, rather than at distribution). Hopefully the tax treaties prevent that sort of thing. It seems that having a good accountant and tax attorney is a must.

I fully agree that it's galling to be audited by a government that would stand no chance of surviving such an audit.

Good point. It sort of relates to the point I was making about relief for personal allowances bring nullified by Japan assessing tax at 20% of you income and then granting a tax credit for any tax you have actually paid at home. If for whatever reason you have earned relief at home then it is swept away because you then have to pay it anyway in Japan. It would seem to be an issue for any tax efficient savings plans outside Japan. Their tax efficient nature might not matter because Japan will come along and tax it all at 20% without possibility of claiming a credit.

[Brown Cow]

The guide is just a guide. It cannot replace qualified advise from a tax consultant. I recently stumbled about the deductions for premiums paid for qualified pension plans. Finally I was told only Japanese pension plans qualify, and not all of them, and it becomes even more difficult if it is about the taxation of your retirement income. They have various tax rates, and the reduce ones are only possible for public pensions. if you get a pension from your previous employer or an insurance, the regular tax rates apply (without the employment credit).



That point, I don't understand.

Thanks for that - It's useful. A guide is just a guide but it refers to other more detailed publications, in Japanese of course. We will see how good wifey's Japanese really is. Actually, her sister is pretty good at this sort of thing but it will take a little time to investigate it properly.

Hopefully the posts above clarify the point about the Japanese system of tax credits and lost tax relief on interest and dividends in the overseas country.

It seems that having a good accountant and tax attorney is a must.

I am not sure I agree - at least not without qualification. In matters immigration, finance and tax I have almost always found that a big chunk of it is not really rocket science at all. Reading the guides carefully (and they are usually carefully written) and a few specific and clear questions to public officials will get exactly the same results at a much lower cost and with the benefit that you do actually understand what's going on.

If however, I knew I was in a lot of trouble as unfortunately some here have been, then yes, qualified, specialist help is essential. The same is true of the occasional issue which is complicated enough, delicate enough and involves enough money to book an hour or so with a specialist. For things like conveyancing, trusts and wills don't ever mess around - just pay a proper lawyer, with professional insurance, to do it.

Even in those exceptional cases, the more you have read and understood in advance the more value for money you can get from your accountant or lawyer's time. He or she doesn't have to spend a lot of time explaining basics and can you get quite a lot of the donkey work done in advance of your meeting so the issues are clear from the outset.

[gaijin ga iru]

I am not sure I agree - at least not without qualification. In matters immigration, finance and tax I have almost always found that a big chunk of it is not really rocket science at all. Reading the guides carefully (and they are usually carefully written) and a few specific and clear questions to public officials will get exactly the same results at a much lower cost and with the benefit that you do actually understand what's going on.

If however, I knew I was in a lot of trouble as unfortunately some here have been, then yes, qualified, specialist help is essential. The same is true of the occasional issue which is complicated enough, delicate enough and involves enough money to book an hour or so with a specialist. For things like conveyancing, trusts and wills don't ever mess around - just pay a proper lawyer, with professional insurance, to do it.

Even in those exceptional cases, the more you have read and understood in advance the more value for money you can get from your accountant or lawyer's time. He or she doesn't have to spend a lot of time explaining basics and can you get quite a lot of the donkey work done in advance of your meeting so the issues are clear from the outset.

Yes, I certainly would do as much research in advance as I can. But I still think an initial visit with an accountant or tax attorney is reasonable. Depending on the nature of your earnings and assets, juggling tax liability to two countries is rife with potential for confusion or misunderstanding. It's often by making a mistake that correct our misunderstanding, and it sounds like mistakes in this regard can be costly. The only drawback I see is that some of them might not be as attentive to you if you don't use their full services.

[Brown Cow]

Yes, I certainly would do as much research in advance as I can. But I still think an initial visit with an accountant or tax attorney is reasonable. Depending on the nature of your earnings and assets, juggling tax liability to two countries is rife with potential for confusion or misunderstanding. It's often by making a mistake that correct our misunderstanding, and it sounds like mistakes in this regard can be costly. The only drawback I see is that some of them might not be as attentive to you if you don't use their full services.

It all depends. What I do with my mother's affairs which were (until I got hold of them) considerably more complex than mine, is read as much as I can, draw up a proposed plan in detail including spreadsheets and then send it to the lawyer for checking and comment. He has caught the odd error and has made suggested some valuable enhancements. So yes, I agree professional advice is important. I prefer to either give them the whole shooting match from the start or bring them in at the end to review, check and edit my plans.

Anyway, my affairs are nowhere near that complexity and scale. I'm fairly ordinary. I don't like trying to be too clever about tax in truth and I don't like complex financial products and schemes that I (and I suspect no-one that I deal with) understands properly.

I am very grateful to this thread for the wake up call it has given me. The only way I can get into real trouble, it seems to me, is if I don't declare my overseas income for 5 years or so and then get caught and have to pay it all in one go plus penalties. That won't be happening that's for sure. I might well get an accountant or lawyer to look over my plans once I have drawn them up though. To that extent, I am very open to the idea of hiring some professional help.

[mechatron]

. . . People always talk about "fairness". Paying taxes is not fair. Why do I pay disproportionately higher taxes than most of you underachievers ? Not because it were fair but because I can. The marginal tax rate system itself is an unfair system. There is no logic and fair reason that the first USD100.000 are being taxed a lot less than than the fifth 100.0000 dollars.
We live in a social society that only works because we don't think in terms like "fair" and "reasonable".

In other words: Just pay it !

After reading this I've got an inexplicable urge to strap on a bandanna, jump into the ____pit of an airplane and dive it nose first into the deck of an approaching aircraft carrier while screaming "Banzai!".

[IparryU]

Just a quick question regarding this. I have a US dollar investment fund that I've been paying into monthly (basically I regard it as a pension) that hasn't been doing so well. My mom's financial advisor in the UK has long been critical of the high fund management fees of that particular investment fund. He advised me to withdraw 50,000 dollars of it to transfer into another investment of mine in the UK which has been doing very well. I can't close the dollar investment without being charged but I can take the 50,000 out without incurring penalties.

Anyhow, his idea was to get the 50,000 dollars transferred as dollars into my Citibank account here as they accept dollars, and then quickly transfer it out to the UK in pounds. I'm much more hesitant having read the problems faced by the good folks on this thread. Even though the money wouldn't be in my Citibank Japan account for longer than a week I still think it may raise red flags. I've spoken to him (the FA) about this and he's looking into it further but I thought people here might be more knowledgeable. I'm also wary as the dollar is so low at the moment it barely seems worth it. I only pay 500 dollars a month into that particular fund and at the moment that amount is almost not noticeable. Would it be better to just have it transferred directly to the UK and converted into pounds over there? Or is it just not worth it as the dollar is so weak? Should I just leave it there and hope that it gets stronger again over time?

I do trust my mom's financial advisor BTW. Under his advice her (and my) investments have been doing well and he's got us out of some previously poorly performing schemes into better ones. I started investing through some companies here that dealt with expats when I was young and still very naive not realizing that basically a lot of it's down to commission rather than the actual quality of the company, and once you're in they're done with you. He transferred a lot of my money into much more profitable investments. My mom's FA is paid direct, and though I'm sure commission may have something to do with it - if we do well he does and he also meets with her regularly to go over everything and she's been satisfied with him for many years.

I just resolved a similar issue with my client last week. The client received a letter from the tax office regarding 3 transfers leaving and coming into Japanese accounts.

So, by redeeming USD50K and having it sent to a Japanese bank it will flag in the system and you need to make a tax claim on this. By doing this, you are clear of all tax liabilities and you are doing what you should do. Note that depending on what the fund is (you weren't clear of that), you may need to back claim a few years on your taxes.

Despite how quick you transfer the funds means nothing at all. Print out a valuation of the policy you are taking money out of, bring it to the tax office when you file, and let them deduce how much tax is to be owed. This is determine on the gains, so if you are in the red, declare it as a loss.
For the policy valuation:
1. Get a valuation for EACH YEAR YOU HELD IT. GET THE VALUATION FOR DEC 31 AND MAR 01
2. Get the USD:JPY exchange rate for exact date your valuations are
3. make a nice excel sheet of this with your profit/loss on the fund in USD and in JPY
4. understand the position of the fund so when you go to the tax office you can confidently explain it
5. if you are in loss, be sure to explain that you are sending USD50K to another "security" to make up for the losses

When you get the money and TT it back out to the UK, make sure you make note that it is for a "security purchase". This does not need to be claimed until money is taken from the UK policy, but the note on the TT form would make it quite clear to the tax office (or whomever) the reason of USD50K coming and going so quickly.

Buying GBP from USD is a good idea now. I got some GBP funds and exchanged my USD to GBP in my Shinsei account as the pound will appreciate against the dollar. Same for JPY:GBP, it is 5% up from it's all time low, so great timing there. For my personal situation, holding USD or GBP is never a bad idea as I can hold it for appreciation or use it when I go on vacation to the US/UK/EU. I just wish I had more JPY to use for my Japan spending and also to go into more GBP/USD funds... but I just don't have much JPY to play with.

Regarding your funds... if you let us know what the funds are that would help out. It seems like DeVere got you or something...

I just got done with my client and the whole tax office gig, so if you want any further info, let me know.

[IparryU]

Yeah, I see. The "within 10 years" hadn't sunk in. So: 5 years in Japan and then 5 years spent out of Japan in order to re-set the clock back to zero.

Doesn't really seem practical for various reasons.

So the conclusion is to report all earnings then after 5 years in Japan. Or suffer the consequences if you're audited.

To make it easy, the permanent tax resident (nothing to do with visa status) is based on a 10 year time frame.

if you have been a resident of japan for 5 out of 10 years, you classify as a permanent resident. not 5 consecutive years, a total of 5 years within a 10 year time frame... add the days up.

to break residency, you have to hand in your gaijin card at customs. when you go through the gate talk to the guard and say you want to break residency and hand him you id card. he will point you to the other person you need to talk to, and they will double, triple confirm if you want to do this or not.

example 1:
you lived in japan for 5 years
you move to Korea and break residency
you move back to japan after 10 years and you start a new 10 year time frame

It's a rolling window -- a culumative five years out of the last ten years. So in this example, by my math, you would not be starting a new ten year time frame with a clean slate. Depending on the dates, looking back over the last ten years, you would have been in Japan cumulatively for at least four years, possibly five, and therefore would hit permanent tax resident status at best after just one more year in Japan.

You'd need to be out of Japan for ten years to completely reset the clock.

example 2:
you lived in japan for 4 years
you move to Korea and break residency
you move back to japan after 4 years and you continue the 10 year time frame
you remain in japan for a year (this makes you at the 9/10 year) and you now have to claim global assets

example 3:
you lived in japan for 5 years (permanent resident status here onward)
you move to Korea and break residency
you move back to japan after 1 year (this makes you at the 6/10 year) and you CONTINUE from your permanent tax status

[iago]

To make it easy, the permanent tax resident (nothing to do with visa status) is based on a 10 year time frame.

if you have been a resident of japan for 5 out of 10 years, you classify as a permanent resident. not 5 consecutive years, a total of 5 years within a 10 year time frame... add the days up.

to break residency, you have to hand in your gaijin card at customs. when you go through the gate talk to the guard and say you want to break residency and hand him you id card. he will point you to the other person you need to talk to, and they will double, triple confirm if you want to do this or not.

example 1:
you lived in japan for 5 years
you move to Korea and break residency
you move back to japan after 5 years and you start a new 10 year time frame

It's a rolling window -- a culumative five years out of the last ten years. So in this example, by my math, you would not be starting a new ten year time frame with a clean slate. Depending on the dates, looking back over the last ten years, you would have been in Japan cumulatively for at least four years, possibly five, and therefore would hit permanent tax resident status at best after just one more year in Japan.

You'd need to be out of Japan for ten years to completely reset the clock.

[Morton]

IparryU,


I have a managed fund which I've been paying for a few years. I haven't touched it and won't until I'm 60 and it ends. At present the value of the fund is higher that what I've put in but the surrender value is still lower. Given that I haven't touched the fund and haven't taken any profit (or loss) should I still be declaring this each year.


I'm not sure I understood what you wrote above but I thought that investment losses can only be put towards the following years profits, and not more than that. Is this incorrect?

[Brown Cow]

It's a rolling window -- a culumative five years out of the last ten years. So in this example, by my math, you would not be starting a new ten year time frame with a clean slate. Depending on the dates, looking back over the last ten years, you would have been in Japan cumulatively for at least four years, possibly five, and therefore would hit permanent tax resident status at best after just one more year in Japan.

You'd need to be out of Japan for ten years to completely reset the clock.

Yes, correct. It is always worth thinking things through for yourself. I glanced at that and nodded it through. That's why I am wary of relying much on "financial advisers". Make sure you understand everything properly. If you don't - walk away from it.

[IparryU]

It's a rolling window -- a culumative five years out of the last ten years. So in this example, by my math, you would not be starting a new ten year time frame with a clean slate. Depending on the dates, looking back over the last ten years, you would have been in Japan cumulatively for at least four years, possibly five, and therefore would hit permanent tax resident status at best after just one more year in Japan.

You'd need to be out of Japan for ten years to completely reset the clock.

Thank you for clarifying that. I will edit post to make it a better reference.

[IparryU]

IparryU,
I have a managed fund which I've been paying for a few years. I haven't touched it and won't until I'm 60 and it ends. At present the value of the fund is higher that what I've put in but the surrender value is still lower. Given that I haven't touched the fund and haven't taken any profit (or loss) should I still be declaring this each year.

I'm not sure I understood what you wrote above but I thought that investment losses can only be put towards the following years profits, and not more than that. Is this incorrect?

Your surrender value will always be lower than the current value until maturity. Japan side of taxes, if you declare it, it does not get taxed if no withdrawals have been made from it. I declare my funds, and am not taxed on it. I reported money that I have received from funds and I cannot remember the percentage that I paid in tax... I will take a look at it again and post it.

If you are American, yes to put that on your tax form. It is just a paper gain and foreign tax credits can be used against it.

The year you lost money on the investment is the year that you can declare it as a loss. But depending on the investment, it may not be applicable. Another issue is, if it is a paper loss (money is still in the fund) or an actual loss (e.g. you sold it and is now your bank account).

[IparryU]

Yes, correct. It is always worth thinking things through for yourself. I glanced at that and nodded it through. That's why I am wary of relying much on "financial advisers". Make sure you understand everything properly. If you don't - walk away from it.

THIS

I really don't understand how someone can sign a contract, and send money somewhere without understanding what it is...