Exit Tax in Japan for foreigners

Outline

Exit Tax had been introduced in Japan on 1^st July 2015 from the point of view of prevention of tax avoidance on unrealized capital gains by moving abroad. Under this measure, permanent residents who has certain financial assets shall are imposed income tax on unrealized capital gain deemed that these assets are sold at the time of departure from Japan.

Exit tax rules apply to foreign national residents as well. If you have some assets and live in Japan for several years, you might need confirm whether you are eligible or not before leaving Japan.

Permanent residents subject to Exit Tax

Individuals who fall under both of the following are permanent residents subject to Exit Tax.

1. Individuals who hold “certain financial assets” whose total amount is over JPY 100 million at the time they depart from Japan.
2. Individuals who have lived in Japan more than 5 years in the last 10 years before departure.

What are “Certain financial assets” subject to Exit Tax?

Securities (such as stocks, mutual funds, bonds), unsettled credit transaction, unsettled derivative transaction, included FX trading (unsettled FX transaction) and other.

Cash or cash deposit, virtual currency, non-financial assets such as real estate are not included.

These financial assets shall be judged whether the total amount of financial assets subject to Exit Tax is JPY 100 million or more regardless of having unrealized capital gain or not.

Term NOT included in the 5-year period of stay

For individuals who has nationality of except Japanese, term residing in Japan under the following visa status of residence would NOT be included.

• Diplomat, Professor, Artist, etc.
• Journalist Highly Skilled Professional, Business Manager, Engineer/ Specialist in Humanities/International service, Entertainer, Skilled Labor, Technical Intern Training, etc.
• Temporary Visitor, etc.
• Student, etc.

( The Status of residence shown under Table1 of the Immigration Control and Refugee Recognition Act)

However, the period of stay should be counted time of residence as a permanent resident or spouse/child of Japanese, spouse/child of permanent resident (The Status of residence shown under Table2 of the Immigration Control and Refugee Recognition Act) after 1^st July 2015.

Table1 and Table2 of the Immigration Control and Refugee Recognition Act:

Therefore, for example, if person starts to live Japan on 1st April 2021 under visa status of Business Manager and married to Japanese and his/her visa status is changed on 1st April 2023, first 3 years would NOT be included. But period of stay after he/she changes the visa status from working visa should be included.

Concerning Exit tax, you should confirm the conditions of Exit Tax in Japan in order to judge if you are subject to or not at first. Second, if you are or will be subject to Exit Tax, you need to check the procedures that matches your situation. The impact of Exit Tax might not be small.

We can help and support you to analyze your situation, and advise for any planning or arrangements for Exit Tax measure.

Tax Payment Grace Period and Reduction Measure

Individuals who submit notification of agent of tax payment can be respite the payment of income tax imposed by Exit tax law to the day 5 years after from the departure from Japan under certain requirements.

For application of this special provisions, individuals subject to Exit tax need some procedures.

Further, during the payment grace period, if individuals who are applied the above special provision returns to Japan or gifts the financial assets subject to Exit Tax to residents on Japan or fulfill other conditions, they are able to claim for correction or reduction of income tax imposed.

Flows of procedures

Case1 : Form of agent of tax payment is filed before departure from Japan

1. Submission of notification of tax agent
2. Departure from Japan
   
3. Return filed by the due date and Provision of security
   Individuals who is subject to exit tax would be deemed that their certain financial assets had been sold for price at the time of departure from Japan and should be filed income tax return.
   Individuals who are respited the payment of income tax need provide securities.
   
4. Submission of notification of continued application
   This notification should be filed on every year during tax payment grace period.
   
5. Returning to Japan (Before expiration of tax payment grace period)
   Individuals who return in 5years from departure can claim for correction or reduction of income tax. If not, income tax or interest tax that had been granted grace should be pay in 4 months from the date of retuning to Japan.
   
6. Expiration of tax payment grace period (5 years or 10 years)

Case2 : Form of agent of tax payment is NOT filed before departure from Japan

1. Quasi-final return filed
   Individuals who is subject to exit tax would be deemed that their certain financial assets had been sold for price at the day before the date 3 months after scheduled date of departure and should be filed Quasi-final return by the date of the departure.
   
2. Departure from Japan
   
3. Returning to Japan
   Individuals who return in 5years from departure can claim for correction or reduction of income tax. If not, income tax or interest tax that had been granted grace should be pay in 4 months from the date of retuning to Japan.

These flows are simplified and not cover all details. There are also some precautions on these procedures. If you need more information and support, please contact us.