Be wary of your investments -- the TAXMAN is watching

[chainbolt]

In other words if your income isnft remotely close to Y20M it is unlikely NTA will be interested in you unless you draw attention to yourself.

Unlikely, but not impossible. There are many other factors that can trigger an audit. Depending on the type of cooperation of the national tax authority in your home country and the NTA, taxable income in your home country might be reported, for example. Such cases were reported and discussed in this thread.

[iago]

Very old news. This was already discussed in this thread. It's also a bit misleading how you put it:

- The reporting duty starts as of 1 January 2014.
- Every permanent tax resident has to report assets above 50 MJPY - not only those how have an annual taxable income above 20 MJPY.
- Actually: Anybody who earns more than 20 MJPY has already for years been obliged to report all assets together with his mandatory tax return.

I agree though: Another little stick that recommends compliance.

Not sure what I '"put" that was misleading, but hey, whatever.

[Guest]

Unlikely, but not impossible.

Right and since I pay my taxes on time and my income is well under 20m I like the odds.

....Depending on the type of cooperation of the national tax authority in your home country and the NTA, taxable income in your home country might be reported, for example.

The IRS doesn't share my tax information with Japan or any other country without a valid reason/request.

... Such cases were reported and discussed in this thread.

In the cases discussed it was a particular transaction which caught their (NTA) attention. It had nothing to do with random audits or because they were a gaijin.

[chainbolt]

Because once you start declaring such income NTA has their hooks in you and they will be watching.

This you can be sure.

Yes, but let's not forget: It's your duty anyway, and it comes with peace of mind.

[Guest]

Yes, but let's not forget: It's your duty anyway, and it comes with peace of mind.

Fine then declare what you earn abroad and pay any additional taxes owed.

However, I'll pass.

[Josh299]

Hi everyone... could anyone advise me on my situation?

I lived in Japan from mid-2007 to late 2012. So I was in Japan for 5.5 years.

Therefore, it appears I was a permanent resident for tax purposes for 0.5 years (i.e., the second half of 2012).

For some of my time in Japan, I was earning interest from my Australian bank account. The interest would have exceeded JPY200,000 for at least one of those years.

I am not living in Japan any more (still have my visa, but I filed a moving-out notice with my ward office).

Do I need to file a tax return for the 2012 tax year, declaring that interest?

[fxgai]

Hi everyone... could anyone advise me on my situation?

I lived in Japan from mid-2007 to late 2012. So I was in Japan for 5.5 years.

Therefore, it appears I was a permanent resident for tax purposes for 0.5 years (i.e., the second half of 2012).

For some of my time in Japan, I was earning interest from my Australian bank account. The interest would have exceeded JPY200,000 for at least one of those years.

I am not living in Japan any more (still have my visa, but I filed a moving-out notice with my ward office).

You were non-permanent resident for tax purposes for the first 5 years. So you don't need to worry about taxes for those first five years, no?

As for the last half a year when you were permanent resident, if interest income was paid to you during those 6 months then, technically, you owe tax.

If you filed a tax return (for example for Japan sourced income) then if you received interest but left it off the tax return then, technically, it should be corrected.

If you didn't file a tax return (e.g. you were taxed from the source on any Japan sourced income you earned, but didn't file a tax return at all as if you had no other income in excess of 200,000 yen) then, technically, you should have filed a return.

But from a practical point of view, is there any way the Japanese authorities could know that you were paid such interest income in excess of 200,000 yen equivalent during that 6 month period?

My personal impression is that given you aren't even in Japan now, and unless you were paid well in excess of 200,000 yen equivalent in interest, then they probably aren't going to bother with this even if they are aware of a possibility of some taxable income. It costs them money to go after taxes, and unless they think it's going to generate more tax than it's costs to collect it, they aren't going to bother.

Do I need to file a tax return for the 2012 tax year, declaring that interest?

If you are planning on coming back on your visa, it would be prudent going forward to declare future income and pay taxes, but as for those 6 months, unless it's you owe a lot, or it's really obvious that you owed some amount, then I'd forget about it.

[Guest]

Just for the record, buying a house in your wife's name is tricky. Unless she can prove she bought it with her own money, and the loan is in her name (unlikely, since you are presumably the one with the salary that qualifies for a loan), the tax office will say it is a gift from you to her and tax you appropriately, 20% I think. And the tax office looks at big purchases, especially put in wive's names.

You can only give your wife or other dependent 1,100,000 yen a year without paying tax on it. (It better to give 1,101,000 yen or so and pay the minimal ax so the gift is registered with the NTA.) If you'd like to give her or your children some of your assets now to avoid the inheritance taxes later, such as part ownership in your house, here is how to do it.

Let's say you have two kids. You can give the kids and her 1,100,000 each yearly, or 3,300,000 total. For cash, just put it in their accounts. For property, do it by rewriting the deed (which costs 35-70,000 yen). The cheapest way is to do rewrite it every two years. If you pay someone to do this rewrite it in January, you can shift 1,100,000 yen per recipient for both the preceding and following year in one rewrite, so in this case, you can shift 6,600,000 yen worth of the house over.

Thank you for this post. Has anyone else done any of the above?

[johnnyG]

Re: deed/title for a house.

24 yrs ago, I didn't have permanent residence when we bought our house. But 80% of the quite large down-payment we were making was mine. In spite of that, and also having a decent job, the banks would not allow my name on either the loan or the title.

We went to the tax office to ask about the possibility that this would be considered a gift, and I still remember that they were, in the main, more puzzled at the banks' conditions and stubbornness than at our concern that this might be considered to be a gift. They also said (not in writing, tho!) that they would not be worried tax-wise about folks in this situation (cost of house was 23m yen). Their suggestion, which we did follow up on:

We went to a legal aide (koshonin-yakuba, who was also puzzled by our situation with the banks) and had them draw up a paper describing our financial situation regarding the house--our respective shares of the down-payment, and our intent to share in future mortgage payments, etc. Lots of hankos on every page. It's been a while since I even looked at it, tho I think I know where it is, it might be 4-6 pages long, and cost maybe 20,000 yen at the time. We had the tax office take a look, too, before it was finalized.

We've never needed it (she's never needed it), and we've never re-deeded the house, long since paid off. Tho I think this document could have helped me during a divorce, that never happened. (yet!)

These days, when I think of my impending voyage into the great beyond..., I'm kind of glad that the house is in her name. It won't be part of my taxable estate, and will be one less thing for her to worry about. Should the opposite happen and she go first, again I'm not worried--I'll share the inheritance with our kids.

[johnnyG]

One other clarification. Rainbow's quote of ctskelly's post might be taken that the wife has no income, which may have an effect on things down at the tax office, or loan conditions specified by a bank, and so on.

In our case, which I realize is personal/anecdotal and from long ago, my wife had a full time job, and so the bank wanted to base its loan (and thus ownership) on her status. I'm not sure what, if anything, would have happened differently if my wife had not also been working.


Also, after posting the above, I did remember (!!!) that we have not sold the house yet. We're still in it. Though I'm sure the value is down from when we bought it, that document that we had prepared so many ages ago might become important if we did sell and then divvied up the proceeds of that sale. Since she's the owner, money from a sale would go to her account, and, depending on what we were doing, she might move a big chunk of that into my name.

Which the tax office might think is a gift, at which time the above document would become important. Just some further ramblings...

(and rainbow, note rec'd, thanks)

[chainbolt]

Just back from my tax accountant, who also happens to be a lawyer, submitting the documentation for the 2012 tax declaration which is due until March 15. Asked him a few questions related to the discussion here. This office is preparing the tax return for more than 300 foreigners in Japan (as he claims), so they should have a good idea what's going on:

- To their knowledge there is no NTA campaign running targeting foreign individuals as assumed in this discussion. He says they would know this. He said though the NTA is now in fact going increasingly after Japanese nationals that have transferred assets abroad and dodge taxes due in Japan on the income from such assets. Interestingly another main purpose for moving assets abroad seems to be to avoid the Japanese inheritance tax. He referred me to a very detailed article at nikkei.com on 10 February about the recent NTA's activities in this regard. It's in Japanese, use google for the translation:

http://www.nikkei.com/money/investme...013000000&df=1

He said in this dragnet tax dodging foreigner might be also caught, but not because they are foreigners, but because the NTA is simply paying more attention to income outside of Japan.

- During the last years they had only 3 cases where foreign clients run into some sort of trouble with their local tax office: An Australian and a Danish national got audited, because the tax office in their home countries reported income to the NTA they had received with zero or reduced tax in their home countries (claiming to be residing in Japan). They got a routine questionnaire from their local tax office to explain the source of the income and how it was declared in Japan. It wasn't, and they had to pay back the tax back for 5 years + interest + penalty.
- The other case was a foreigner (married to Japanese) who has been living in Japan for 20 years and never paid any tax here, as he got his salary in Hongkong. The person was going to retire and transferred 20 MJPY from his foreign account to buy an apartment in Japan. He got the routine questionnaire from the NTA to explain the source of the money. He ignored it. Then the tax office visited him at home for a site audit. He did not let them in, and even insulted the officers. He then realized that he either had to leave Japan or negotiate a deal with the NTA. He finally had to pay back for 5 years all taxes + interest + penalty. The lawyer told me that even in this case the NTA very reluctantly agreed not go back the full 7 years, because it would have been difficult to prove "fraud".

[O'Hanlon]

A good overview

Just back from my tax accountant, who also happens to be a lawyer, submitting the documentation for the 2012 tax declaration which is due until March 15. Asked him a few questions related to the discussion here. This office is preparing the tax return for more than 300 foreigners in Japan (as he claims), so they should have a good idea what's going on:

- To their knowledge there is no NTA campaign running targeting foreign individuals as assumed in this discussion. He says they would know this. He said though the NTA is now in fact going increasingly after Japanese nationals that have transferred assets abroad and dodge taxes due in Japan on the income from such assets. Interestingly another main purpose for moving assets abroad seems to be to avoid the Japanese inheritance tax. He referred me to a very detailed article at nikkei.com on 10 February about the recent NTA's activities in this regard. It's in Japanese, use google for the translation:

http://www.nikkei.com/money/investme...013000000&df=1

He said in this dragnet tax dodging foreigner might be also caught, but not because they are foreigners, but because the NTA is simply paying more attention to income outside of Japan.

- During the last years they had only 3 cases where foreign clients run into some sort of trouble with their local tax office: An Australian and a Danish national got audited, because the tax office in their home countries reported income to the NTA they had received with zero or reduced tax in their home countries (claiming to be residing in Japan). They got a routine questionnaire from their local tax office to explain the source of the income and how it was declared in Japan. It wasn't, and they had to pay back the tax back for 5 years + interest + penalty.
- The other case was a foreigner (married to Japanese) who has been living in Japan for 20 years and never paid any tax here, as he got his salary in Hongkong. The person was going to retire and transferred 20 MJPY from his foreign account to buy an apartment in Japan. He got the routine questionnaire from the NTA to explain the source of the money. He ignored it. Then the tax office visited him at home for a site audit. He did not let them in, and even insulted the officers. He then realized that he either had to leave Japan or negotiate a deal with the NTA. He finally had to pay back for 5 years all taxes + interest + penalty. The lawyer told me that even in this case the NTA very reluctantly agreed not go back the full 7 years, because it would have been difficult to prove "fraud".

__________-----------------------------------------------------------------------------------------

Its very easy to fall into the trap of thinking (as I did) that The NTA is hounding foreigners. However the current need to maximize revenue by the J government aligns with Chainbolt's overview from personal experience. Now you know why Japanese hoard cash in safes.

I will go to the tax dept tommorrow hoping to find out why after being investigated and "punished" (taxes + interest + penalty) I am now being taxed in advance, as well as in my monthly salary. The key learning point from from the above overview is once you are on the radar, the only options are get out, or cooperate and present your total income and assets. Being arrogant doesn't work.

Never used a tax accountant.
O'Hanlon

[Guest]

__________Its very easy to fall into the trap of thinking (as I did) that The NTA is hounding foreigners.

I never bought into such reports. I've always said English teachers generally don't earn enough to warrant such scrutiny. It's usually the way money is transferred which draws the attention of NTA.

__________---------------------------------------------------------------------------------------- Now you know why Japanese hoard cash in safes.

Unless they earn a lot of unreported income why would Japanese hoard money in a safe?

__________----------------------------------------------------------------------------------------- I will go to the tax dept tomorrow hoping to find out why after being investigated and "punished" (taxes + interest + penalty) I am now being taxed in advance, as well as in my monthly salary.

No doubt to be sure they get their cut

__________-----------------------------------------------------------------------------------------The key learning point from the above overview is once you are on the radar, the only options are get out, or cooperate and present your total income and assets. Being arrogant doesn't work.

That's a given.

__________-----------------------------------------------------------------------------------------
Never used a tax accountant.

Why not?

It's usually the way money is transferred which draws the attention of NTA.

I have had professional advice and heard anecdotes that all point to this as the start of a tax dodger's trail of tears.

I do believe that is how our own beloved Tax Muppet opened his own Shakespearean tragedy.

In his case, without any evil intentions, of course.

I have a rather complicated situation, and have been told in the strongest terms to not transfer electronically any appreciable amounts of Yen out, and was even told to just carry the upper cash limit minus about 10,000 yen onto the plane whenever I am there.

[Brown Cow]

If overseas income is targeted then foreigners will come under more scrutiny by dint of the fact they more commonly have overseas income. In fact, it is reasonable to suppose that most resident foreigners have overseas income and inheritances.

The argument that the tax office won't bother with you because you are too small has some weight. They have limited resources and so need to direct them as efficiently as possible. However, that doesn't mean that it can't happen, just that it is less likely to. There is also such a thing as being low hanging fruit. People and companies with significant resources are able to make it much more difficult and expensive for the tax authorities to recover money.

Everybody has their own set of circumstances. For some it may be true that keeping quiet and maintaining a low profile will be a successful strategy. For others, it may not be so smart.