Foreign nationals living in Japan can also come under an obligation to report their overseas assets. The Report of Foreign Assets (kokugai zaisan chōsho) must be filed by residents other than non-permanent residents — broadly, “permanent residents” for tax purposes — who hold foreign assets totalling more than ¥50 million as of 31 December. The filing deadline is 30 June of the following year.
Who must file the overseas assets report?
It helps to sort out the underlying categories first. Under the Income Tax Act, an individual who has a domicile in Japan, or who has had a residence in Japan continuously for one year or more, is a “resident”. Residents are then divided into two groups. A resident who does not have Japanese nationality and whose periods of domicile or residence in Japan total five years or less within the past ten years is a “non-permanent resident”; every other resident is what is broadly called a “permanent resident” for tax purposes. It is this second group — permanent residents — that carries the obligation to file the Report of Foreign Assets. So for a foreign national the sequence is this: once your cumulative years in Japan exceed five within the past ten, you cease to be a non-permanent resident, become a permanent resident for tax purposes, and come within the group required to file. It is from this point that the home, securities accounts or pension assets left in your home country can become reportable.
How overseas assets are valued
Assets are valued at their market value (or an estimated value) as of 31 December, and foreign-currency assets are converted into yen at the exchange rate on that date.
Unreported foreign assets: penalties and incentives to file
The system has built-in incentives to file. If the report is filed on time and an underreporting of income tax relating to a listed foreign asset later comes to light, the penalty tax is reduced by 5 percentage points; conversely, failure to file, or omissions, attract a 5-point increase. Criminal penalties are also provided for failure to file without justifiable grounds and for false statements. (See our note: How Japanese Tax Examinations Work.)
The Common Reporting Standard (CRS) and automatic exchange
Alongside this, it is worth knowing about the CRS (Common Reporting Standard). The CRS is an OECD framework for the automatic exchange of financial account information: financial institutions in each jurisdiction report the accounts of non-residents (balances, interest, dividends and so on) to their own tax authority, and the information is then exchanged between jurisdictions automatically every year under tax treaties and similar instruments. Japan began exchanging in 2018, and more than 100 jurisdictions participate (including the UK, Germany, France, Australia, Canada, Singapore and Hong Kong; the United States does not participate in the CRS and operates instead under FATCA). Information on foreign assets now moves between tax authorities through these channels.
The starting point is to determine whether you are required to file, and to value the assets concerned. The first year in which the obligation arises is exactly when professional support is most useful.
Not sure whether you must file?
We determine filing obligations and prepare the Report of Foreign Assets — by email.
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