Filing Japanese tax returns (確定申告)

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bpp
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Filing Japanese tax returns (確定申告)

Post by bpp »

Filing Japanese tax returns (確定申告)

What follow are some notes put together during offline discussions between Karamatsu and bpp on how to handle various questions an investor may face while filing taxes in Japan. This is NOT a comprehensive tax guide, and we are NOT experts. These are just some subjects that have come up, some of which have been resolved by calling the National Tax Agency (NTA) of Japan. Take these as guides, not as advice. If anything looks strange, verify with your own sources, as our information may be wrong or (become) out of date.

With luck, this list of notes will expand over time with input from anyone with questions or answers/experience to share, to serve as a useful reference. Please feel free to chip in with either questions or answers!

National Tax Agency web site: http://www.nta.go.jp

If you can read Japanese, they have an online program for preparing your tax return:
http://www.nta.go.jp/tetsuzuki/shinkoku ... /index.htm
It is free, pretty straightforward, and gives lots of guidance. Pretty much any place where you are wondering, "what the heck is that?" there is a link to help on that topic. Intermediate results can be saved to your computer to be picked up again later. You can try what-if scenarios. (E.g., am I better off handling dividends with aggregate taxation, or separate taxation? Try it both ways and see which way minimizes your tax bill.) In any case, it is a lot easier to navigate than staring at a stack of forms and instructions and trying to figure out which ones you need.

You can e-file, if you buy a special-purpose card reader for that purpose, or you can simply print out the return and mail it in, or bring it to a filing center.

For English help, here is the NTA 2012 tax guide for foreigners:
http://www.nta.go.jp/tetsuzuki/shinkoku ... pdf/43.pdf

...Unfortunately, even for a native English, Japanese-as-a-second-language speaker, the English guide is often harder to understand than the Japanese one! Particularly when it comes to fine details. It can help give an idea of the general lay of the land quickly, but do make sure to double-check any details that are significant for your case in the Japanese guide:
http://www.nta.go.jp/tetsuzuki/shinkoku ... pdf/02.pdf

When all else fails, you can call the NTA local office near you and talk to a live human being. They are very helpful, even with questions involving international taxation. To find the phone number of the tax office nearest you, look here:
http://www.nta.go.jp/soshiki/kokuzeikyo ... /chizu.htm

Investments in Japan

If you are investing through a Japanese brokerage or bank, then it is highly recommended to use a type of account called Tokutei Kouza (特定口座). In the default condition, all capital gains are automatically netted out and applicable taxes deducted, and you do not have to report anything that goes on inside it on your tax return: what happens in the Tokutei Kouza, stays in the Tokutei Kouza. If it is to your advantage to do so, you have the option to "open up" the Tokutei Kouza at tax time and declare what happened inside it, in order to do things like net gains in one account against losses in another one, or to carry forward losses to the next year. But you don't have to.

Note that dividends received at Japanese brokerages also generally don't have to be reported, because tax is automatically withheld from them as well. The same is true of interest payments received through Japanese banks and brokerages. In general, investing only through Japanese institutions will make your life in Japan much easier at tax time.

Investments outside Japan

You can, of course, also invest through brokerages outside of Japan, in which case you will need to explicitly report all interest, dividends and capital gains received. Tax-wise, interest, dividends and capital gains received in a foreign account are generally treated the same as those received through a Japanese financial institution (e.g., you can offset capital gains in a foreign account with capital losses in a Japanese one, and vice versa), with the exception that capital losses incurred in a foreign account cannot be carried forward to the next year. Use 'em or lose 'em in the year they were incurred.

Foreign exchange rate

To convert amounts of taxable events from foreign currencies to yen, you have to use the daily rate at the time of the event. You cannot just use a yearly average for all transactions in that year.

The rates involved are TTS (yen sell rate), TTB (yen buy rate), and TTM (mid-point between the buy and sell rates).
TTM tables are easy to come by. TTS and TTB spreads depend on your bank.

The foreign exchange rate used to convert dividends from a foreign currency to yen is the TTM rate (mid-point rate between buy and ask) on the day of the dividend.

To convert a foreign-currency-denominated capital gain, use the TTM rates at time of purchase and and time of sale to get the yen buy and sell amounts. It is also allowed to use the TTS rate for the purchase price, and the TTB rate for the sale price, which will lower your yen-denominated capital gain by the amount of the spread.

Bonds and bond funds

Bond taxation can be a bit tricky.

Capital gains on individual bonds are not taxable in Japan. Gains incurred upon maturity, however, are (as miscellaneous income, not as capital gains). To calculate the gain at maturation/redemption of a foreign currency bond, calculate the gain in the foreign currency first, then convert that gain to yen at the prevailing exchange rate at the time of redemption. Bond coupons are taxed as interest. Distributions from Japanese bond funds will usually be taxed as interest, unless the fund also holds stocks or other non-bond assets, in which case the distributions may end up being treated like dividends.

If you hold a foreign bond ETF (e.g., BND), the distributions apparently get treated as dividends, not interest. Capital gains in the ETF will also be taxable.

Other issues

If you are a US taxpayer (US citizen or green-card holder), and you buy US-based ETFs through a Japanese broker, the brokerage should ask you to fill out a W-9, in which case US taxes will not be automatically withheld from dividends in that account -- you just report them on your US tax return. (Note: Nomura appears to handle this correctly, whereas SMBC Nikko does not, at least not by default.)
Last edited by bpp on Sat Feb 23, 2013 6:16 pm, edited 2 times in total.
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Barry Barnitz
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Re: Filing Japanese tax returns (確定申告)

Post by Barry Barnitz »

Hi bpp and Karamatsu:

I have created a footnote entry for this thread in the Investing in Japan wiki page: Investing in Japan - Bogleheads.

Thanks,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
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Re: Filing Japanese tax returns (確定申告)

Post by bpp »

Thanks, Barry!
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Re: Filing Japanese tax returns (確定申告)

Post by bpp »

Additional note:
Other issues

If you are a US taxpayer (US citizen or green-card holder), and you buy US-based ETFs through a Japanese broker, the brokerage should ask you to fill out a W-9, in which case US taxes will not be automatically withheld from dividends in that account -- you just report them on your US tax return. (Note: Nomura appears to handle this correctly, whereas SMBC Nikko does not, at least not by default.)
To add: if you are a US taxpayer with a W-9 on file with Nomura, and you buy US ETFs through them, you will get a 1099 for any income related to those ETFs from BNY Mellon (as US Witholding and Paying Agent for Nomura Securities), for use on your US tax return.

Regardless of your US status, you will also get a separate 年間取引報告書 from Nomura, for use if needed on your Japanese tax return.
nekotikara
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Re: Filing Japanese tax returns (確定申告)

Post by nekotikara »

bpp, thank you very much for this informative post.

Do you have advice about foreign tax credit (外国税額控除)? I am a US citizen living in Japan (over 5 years). I'm reporting income from dividends and interest from my US bank and brokerage on my kakutei shinkoku. I imagine when I do my US taxes, I'll get taxed again on these as well. Is it better to claim foreign tax credit on my Japanese or US tax return?
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bpp
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Re: Filing Japanese tax returns (確定申告)

Post by bpp »

Hi neko,

Let me preface this by noting that I haven't bothered with the foreign tax credit much on either my US or Japanese taxes, so am probably not the best person to discuss this complicated subject. What follows is based on what I have read of the US-Japan tax treaty, and IRS and NTA filing instructions.

According to the US-Japan tax treaty (http://www.irs.gov/Businesses/Internati ... -Documents), the US gets first dibs on the first 10% in tax from US-derived dividends, and Japan gets anything above that. Vice versa for Japan-sourced dividends.

So let's suppose you own VTI, Vanguard Total (US) Stock Market Index. The US is allowed to tax dividends from VTI up to 10%. If, on your US taxes, you would owe more than that, then you can claim a foreign tax credit on your US taxes for anything above that 10% that Japan charges in tax. Of course, through this year, the Japanese tax on dividends is only 10%, so you would not have such a tax credit to claim. From next year, the Japanese tax is due to go up to 20%, so you would have (20%-10%) = 10% tax credit on your US taxes for the Japan taxes.

On your Japanese taxes, you should be able to claim a tax credit for the 10% tax paid to the US on those dividends. Of course, if you owed less than 10% to the US (due to dividends falling within the standard deduction after application of FEIE, or due to the dividends being received within a tax-exempt account in the US, for example), then you will not be able to claim the full 10% tax credit on your Japanese taxes.

More complicated cases abound, of course, but in general, in principle, you may have to claim partial foreign tax credits with BOTH the US and Japan, according to the US-Japan tax treaty.

Hopefully, someone else with more direct experience with this specific issue can chip in.
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Re: Filing Japanese tax returns (確定申告)

Post by bpp »

Note: looks like the treaty also specifies that interest is treated like dividends, with the source country (if one lives in the other country) getting dibs on the first 10% in taxation, and one's country of residence getting anything above that. Capital gains are taxed first in one's country of residence, with the exception of real estate, in which case the country where the real estate is located gets to tax it first with no limitation as to percentage.

So to summarize, for your US investments:

Capital gains:
--Japanese tax return: Taxable in full, no foreign tax credit available.
--US tax return: Foreign tax credit available for taxes paid to Japan.

US-source Interest and dividends:
--Japanese tax return: Foreign tax credit available for portion of US taxes paid up to 10%.
--US tax return: Foreign tax credit available for portion of Japanese taxes paid over 10%.

Note that I have side-stepped the issue of foreign taxes paid to other countries, such as would be shown on a 1099 for an international stock fund. The US treatment is straightforward: take a foreign tax credit for them. The Japanese case is not quite as clear-cut, seems to me, because Japan generally seems to treat US-based ETFs as if they were simply US stocks, with no pass-through treatment from the underlying assets. An NTA guy I spoke to on the phone seemed to think that it might be possible to use the information shown on a 1099 to get a foreign tax credit for taxes shown as paid to other countries as well, though he admitted that the paperwork would be a pain in the neck and would probably require a personal visit to the tax office to argue your case.
Karamatsu
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Re: Filing Japanese tax returns (確定申告)

Post by Karamatsu »

Sorry I didn't catch this question before. I file for the foreign tax credits on both sides of the Pacific each year, and while the process is a bit convoluted and you never really get the credits that you'd expect in principle, it can be worth doing, if only for the educational value. On the Japan side the form you need is here and includes instructions, but they're not always the most clear. As you go through them it's good to have this other document. It has some examples of the filled-out form.

Once you figure it out, it's not all that hard, although there are no instructions at all for some parts of the form, and instead they just refer you to applicable clauses in the Tax Code, which... isn't the most informative. On the plus side, the Japanese FTC is much simpler than its US counterpart, Form 1116. Probably the best strategy the first couple of years is to fill in as much as you can on your own, so you know what's going on, then take the forms, along with your previous year's US tax return and your current year US 1099 along with you to the tax agency "help corner" and let them check it over. After that it becomes pretty mechanical.

One thing is that, in Japan, unused foreign tax credits can be carried forward for three years (10 years in the US), but I suspect that, to use credits from your previous years now you'd have to file amended JP returns for those years first, so you have to decide if it's worth it. Or you could just let go of the earlier years start fresh with this year. As bpp says it's not really a question of whether to file for FTC in Japan or the US, like you have to choose one or the other. Each only looks at your income and taxes from its own (quirky) point of view, so you can file for FTC with one, or with both, more or less independently.

Another point to be aware of is that, because of the timing and the fact that Japan operates mostly on a cash basis, on your JP return you'll actually be filing for a credit on your US taxes paid for 2011 (that would have been paid with the US return filed in 2012). Also on the US side you take credit for both national and inhabitants tax.

There's no problem (or at least I haven't had trouble yet) claiming FTC on the amount that shows up as "Foreign taxes paid" by funds (or whatever) on your US 1099. Just attach a copy of that page from your 1099 and highlight it somehow, showing the rate you used to convert to yen. Post something or feel free to send a PM if you have questions.

Oh, but I almost forgot. The other major wrinkle is that, because the Japan-US tax treaty limits the US to taxing Japanese citizens 10% on US-earned dividends and interest, and 0% on capital gains, Japan will only recognize that fraction of your actual US tax paid. So you have to take care not to claim more in FTC in Japan than a Japanese citizen would have been allowed.

It's messy...
Last edited by Karamatsu on Mon Mar 11, 2013 12:11 am, edited 1 time in total.
Karamatsu
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Re: Filing Japanese tax returns (確定申告)

Post by Karamatsu »

Also I've been meaning to post some notes on handling the tax on investments in US brokerage accounts. There are some discriminatory rules that make it advantageous to use Japanese broker, but it depends on your situation, details of your investment strategy, comfort level doing financial stuff in Japanese, etc. Keep in mind our disclaimer at the top, though! I'm not an expert and everything I say here could easily be wrong, so please verify with your own sources.

As far as taxes go...

Equities and ETFs

Equities and ETFs in a foreign brokerage account are treated as unlisted stocks (未公開), even though they are listed on a foreign exchange, so your gains (losses) will be entered in a separate income category from listed stocks. The worst thing about this is that gains will be taxed at 20% rather than getting the "temporary" preferential rate of 10% for listed stocks. Supposedly that difference will be eliminated in 2014 but they've said that before and always extended the preferential rate. At this point, having extended it so many times, I imagine they're concerned about a massive sell-off.

The other discriminatory issue is that you cannot carry losses from unlisted stocks forward at all. Only losses in the listed category can be carried forward (for three years).

That said, if you have a loss on your unlisted (US) stocks and a gain from listed (JP) stocks, you can offset the listed stock gains with the losses from your unlisted stocks, but of course, only in the current year.

When reporting sales of unlisted stocks you must convert the amounts to yen. With listed stocks most people choose to use the TTB/TTS rates on the date of purchase and sale. This makes sense because there is an actual conversion of yen to dollars (or dollars to yen) that occurs on those dates. With unlisted stock there is no implied conversion so you're supposed to use the TTM rate. The tax agency seems to prefer the exchange rates from Mitsubishi UFJ, and you can look them up on any date through this page, using the form at the bottom to select the date and currency. Note that the Japanese FX market is closed on weekends and national holidays, so every now and then there won't be an exchange rate quoted on the day of a transaction as reported on your US 1099. This is particularly problematic around Golden Week and New Years holidays, when there's a long sequence of days with no market activity. In those cases I just use the rate on the next available business day.

As mentioned in the previous note, if you hold a fund or stock in your US brokerage account that pays "foreign" (meaning non-US) taxes to one or more other countries, you can take a foreign tax credit for this on your JP return. Unlike taxes imposed by the IRS, there does not appear to be any treaty limitation on taxation by non-US countries, so you can take a credit for the full amount (subject only to your general foreign tax credit limits).

Capital gains distributions from funds are taxed as dividends.

Note that when filling out Form 3 you have to be very careful to compute your tax based on the type(s) of equities you have. Both listed and unlisted figures are combined on Form 3 Line (71), but you have to keep them straight in your head (or spreadsheet) when calculating the tax on Line (79). Also just for clarity, remember that on the tax return you are only reporting your national tax obligations, so in 2012 the national tax on gains for listed stocks is 7%, but 15% for gains on unlisted stocks. The remaining 3% and 5% (respectively) for inhabitants tax will either be billed or withheld from salary later.

Bonds and Bond Funds

Bond interest is taxed as interest, so on Form B it goes on line (エ) and (4), and is taxed at your marginal income rate. When interest is withheld at the source in Japan the rate is 20% so whether taxation at the marginal rate is good or bad depends on your circumstances. But in any case, it doesn't seem like there is much that can be done about it.

The interest paid out by a bond fund, on the other hand, is generally treated as a dividend, although this is not always entirely clear and seems to involve some judgement depending on whether the fund holds assets other than bonds or not.

When a bond matures in a foreign brokerage account, any gain or loss on the sale is converted to yen using the TTM rate on the maturity date and is combined with other such gains/losses as miscellaneous income (Form B Line (ク)).

And now one of the stranger things, if you sell an ordinary foreign bond before maturity, no tax is imposed by Japan. It used to be that this was a blanket rule applicable to any foreign bond, but what they discovered is that Japanese people and corporations were buying US zero-coupon bonds, then selling them just before maturity to get the entire gain tax-free, so now the exemption only applies to "ordinary" bonds. I suspect that the reason for this exemption has to do with massive holdings of US bonds by Japanese corporations, but can't be sure.

TIPS, however, are treated like ordinary bonds, and there is no Japanese taxation on the "phantom" income that appears as OID on your US 1099. So if you hold a TIPS to maturity you'll pay tax on the total difference between the (nominal) principal returned and the nominal cost basis as miscellaneous income, as mentioned above. However, combined with the paragraph above it's hard not to see a potential strategy to realize a gain without much tax burden.

Accrued interest paid at the time of purchase of a bond is treated as a "cost" of the interest, and can be deducted from coupon interest received. I'm not sure what happens if you paid accrued interest but had no coupon interest to deduct it from.

The yen amount for interest is supposed to be computed using the exchange rate on the date received, but because I have a lot of small amounts I've always just used the average annual rate (also from MUFJ) to compute the yen equivalent of the summary figure on my US 1099. No complaints so far...

Dividends

Foreign dividends is treated the same as domestic dividends, and currently taxed at the preferential rate of 10%.

From 2009 to 2012, at least, it has been possible to offset dividend income with losses on equities, so if you had 200,000 in dividends but a 100,000 yen loss in equities, you could combine these and pay tax on only the 100,000 in dividends. It's not clear whether this will continue to be possible after 2012, but if the rule continues in its present form, then it looks like foreign losses can also be deducted from dividends received.

As with gains from listed stocks, so while the taxation rate on dividends is 10%, you'll only report 7% national tax on Form 3 Line (80), and the remaining 3% will be handled through your inhabitants tax later.

As with interest, the yen amount for dividends is supposed to be computed using the exchange rate on the date received, but because I have a lot of small dividends, too, I've always just used the annual average rate to compute the yen equivalent of the summary figure on my US 1099.

Other Points

Japan revises its tax code every year so things change rapidly, but one distinction to be aware of is the terms 上場株式 and 上場株式等. The former refers to stocks listed on a Japanese exchange. The latter refers to a wider group of investments including stocks listed on a foreign exchange. So you have to take care when reading the Japanese instructions or tax code.

If you have employee stock options in Japan, you fall into the Tax Treaty Twilight Zone and may have to request the assistance of the legal "competent authority" to resolve double taxation, especially if the option plan is qualified in Japan but not qualified in the US. The process from the US side is documented here. Good luck and please post something if you have any success.

There is very little accessible/authoritative information available on the treatment of assets in foreign accounts. A lot of times different tax accountants, as well as different people at the NTA, will give different answers to the same question. What you want is someone who either knows international taxation intimately or is willing to take the time to go research the question. Beware of anyone who gives an answer too quickly!

The NTA can go back and audit returns for the past 5 years, or 7 years if they suspect wilful violation of the law, so keep your old returns and all of the material and calculations you used to complete them at least that long. It's also good to include copies of your backing documents (1099, etc) with your return so they can see how you got this or that number without calling you in to explain, which normally means taking a half-day off of work.

If you discover an error, especially one that involves not paying enough tax, it is best to file an amended return on your own volition. If you do, you'll have to pay some interest on the unpaid tax, but there will be no penalties unless the tax agency believes you acted in wilful disregard of the law. At that point, though, it might be worth asking a tax accountant to look over the return and the amendment to make sure you got it all right.
Karamatsu
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Re: Filing Japanese tax returns (確定申告)

Post by Karamatsu »

In a related note, for US taxpayers in Japan, the IRS will have a staff member at the US embassy this week -- for a whole two days (3/13-14) -- to answer questions. It's by appointment, so the thing to do is to call Ms. Ronda Berry at the embassy (03-3224-5000) and see if they can schedule a time for you.
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bpp
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Re: Filing Japanese tax returns (確定申告)

Post by bpp »

With the Japanese tax filing season coming to a close on March 15, some notes on tax changes coming up, for planning purposes.

As mentioned above, the temporary 10% rate for capital gains (on stocks held through Japanese brokers) and dividends is scheduled to end on Dec. 31, 2013, and both rates will revert to 20% from Jan. 1, 2014.

In addition, according to a Cabinet Decision passed in January of this year, the tax-free status of bond capital gains will end on Dec. 31 2015, and bond capital gains will be treated the same as stock capital gains starting Jan. 1, 2016.

So those might be two deadlines to bear in mind for possible gain harvesting.

Also, starting in 2014, it will be possible to put money into a new type of account informally known as a "Japanese-version ISA" (日本版ISA), which is a kind of tax-free account modeled after UK Individual Savings Accounts. It also resembles a sort of time-limited US Roth IRA. According to the same Cabinet Decision mentioned above (which modifies previous law establishing the ISA), one can put up to 1,000,000 yen per year into an ISA, where it can remain for 5 years with all gains and dividends being tax-free. (Losses cannot be claimed.) Current regulations are that one will be able to make deposits for up to 10 years, through 2023, with a total deposit amount of 5,000,000 yen -- in Year 6 one has to pull out everything from Year 1, for example, though one can roll over 1,000,000 yen worth of principle and gains from Year 1 as Year 6's deposit. (Sounds like the paperwork will be fun!) Accounts can be opened from October of this year, but cannot be funded until January 2014.

For a summary of these and some other items from the Jan. 29 Cabinet Decision, see here: http://www.fsa.go.jp/news/24/sonota/20130129-2/01.pdf
For full gory details, here is the text of the Cabinet Decision itself: http://www.mof.go.jp/tax_policy/tax_ref ... taikou.pdf

Happy planning!
Thomas Moore
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Re: Filing Japanese tax returns (確定申告)

Post by Thomas Moore »

Hello. Anyone have any thoughts as to if interest on I Bonds can be deferred until cashed for Japanese taxes as they can be for US taxes?
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bpp
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Re: Filing Japanese tax returns (確定申告)

Post by bpp »

Hi Thomas,

My guess is that since you don't actually get cash interest paid out from I Bonds, you could defer the accumulated interest until cashing them out and then declare the accumulated gain as miscellaneous income, similarly to a zero-coupon bond.

But that's just a guess! Couldn't hurt to call the NTA and ask. (And post back here with the reply! :))
Thomas Moore
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Re: Filing Japanese tax returns (確定申告)

Post by Thomas Moore »

Thank you BPP. I appreciate it.
I will post if I find anything definitive.
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bpp
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Re: Filing Japanese tax returns (確定申告)

Post by bpp »

Adding a link to another thread, which includes some discussion of the new NISA accounts towards the end:
http://www.bogleheads.org/forum/viewtop ... 1&t=126950
Karamatsu
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Re: Filing Japanese tax returns (確定申告)

Post by Karamatsu »

So its getting to be that season again. One new innovation seems to be that the NTA are following the US lead (Form 8938) and beginning this year will require a disclosure of foreign assets (国外財産調書) if those assets exceed 50,000,000 yen on 12/31 of the previous year (about US$475,000 using the exchange rate on 31 December 2013). I haven't delved into the details yet, so right now it's just a "Heads up!" but the form has to be filed by 15 March so I imagine there is going to be a lot of confusion this year. And a lot of scurrying.
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bpp
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Re: Filing Japanese tax returns (確定申告)

Post by bpp »

Thanks for that, Karamatsu. At a quick glance, one significant difference between the 国外財産調書 and Form 8938 (and FBAR) seems to be that foreign real estate is reportable on the Japanese version, but generally not on the US versions.

In other news, the 2013 edition of the English income tax filing guide is out:
http://www.nta.go.jp/tetsuzuki/shinkoku ... pdf/43.pdf
sjones
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Re: Filing Japanese tax returns (確定申告)

Post by sjones »

Some great information on this thread.

I'm doing my 2013 taxes now, and I'm not sure if I have done it right.

Which line on the first page of a Japanese tax return should my capital gains and dividends that occurred in my foreign brokerage account show up in?

If I set everything as unlisted (未公開) as recommended above, I get my dividends set as aggregate taxation, not at the separate taxation rate of 20%.

What category should I use for foreign dividends?

Thanks,
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bpp
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Re: Filing Japanese tax returns (確定申告)

Post by bpp »

sjones wrote:Some great information on this thread.

I'm doing my 2013 taxes now, and I'm not sure if I have done it right.

Which line on the first page of a Japanese tax return should my capital gains and dividends that occurred in my foreign brokerage account show up in?

If I set everything as unlisted (未公開) as recommended above, I get my dividends set as aggregate taxation, not at the separate taxation rate of 20%.

What category should I use for foreign dividends?

Thanks,
As it happens, I recently spent some time on the phone with the NTA over just this issue. The answer is, for separate taxation, the dividends go on Form B, 第三表, Line テ (and Line 66). I.e., they are treated as listed stock dividends (上場株式等の配当) for the purpose of the tax return, DESPITE the fact that legally they are not. I asked if they were sure, given the fact that they are not legally defined as 上場株式等の配当, and they said yes.
Karamatsu
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Re: Filing Japanese tax returns (確定申告)

Post by Karamatsu »

Yes, I can confirm (for what its worth!) that that's what I always do: foreign dividends on B-3. The reason is that the dividends reported for aggregate taxation on B-1 Line (オ) are used to calculate the dividend credit on B-1 Line (28), but that credit is only available for dividends paid by Japan-domiciled companies.
Karamatsu
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Re: Filing Japanese tax returns (確定申告)

Post by Karamatsu »

Meanwhile having had some fairly good experiences with TurboTax for US returns I thought I would try some Japanese tax preparation software. The only product I could find easily was somewhat optimistically named Yaruzo! from Rio, which retails for about 4,500 yen (try Amazon Japan).

The first thing I should say is that it's not TurboTax, which is to say, it's not nearly as comprehensive. There is no support for the special treatment of foreign accounts, no support for the foreign tax credit, no support for the new foreign asset report, or any of the other things that expatriates need. Another major difference is that while TurboTax uses an interview format, Yaruzo! displays the tax forms themselves and has you fill things out as you go. In a way that makes it very more straightforward than TurboTax because you know what it's asking and why, but it also means that, in cases where there is more than one way to calculate a particular line item on the tax form, the software won't do it automatically. This is disappointing, since that's exactly the kind of logic software is good at.

The other difficulty of working with Yaruzo is that it doesn't carry values automatically from one page, or even one part of one page, to another. Instead as you work your way through each section the software displays buttons you have to click to import data from other pages, but this can get complex. For example, to fill out Form B-3 you need to import data from B-1, but then you have to copy the tax computed on B-3 back to B-1 by hand. Forgetting to do one or the other will lead to an incorrect return, but there is no warning that this could happen. It's a tremendous design flaw. Likewise when you go to finally print your return, there's no way to just say, "Print my return." You have to go to each page and print that separately.

So while the software is somewhat useful as a forms printer, it's not nearly as good at tax return preparation as it could be. You have to know what you're doing in order to use the software and correct for its mistakes and omissions. But once you do that, at least the forms look good. Also I should say, although the company touts its customer support, when I sent a question in by E-mail they didn't reply at all.

I'd be interested in learning if anyone has found a more comprehensive product.
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bpp
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Re: Filing Japanese tax returns (確定申告)

Post by bpp »

Karamatsu wrote: I'd be interested in learning if anyone has found a more comprehensive product.
I just use the NTA's free online program:
http://www.nta.go.jp/tetsuzuki/shinkoku ... /index.htm

Nothing fancy, but seems a lot easier to use than what you describe of Yaruzo!
Values get carried around properly from one section to the next, as far as I can tell.
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Re: Filing Japanese tax returns (確定申告)

Post by Karamatsu »

Yes, there is that, and the price is certainly right.I was just hoping that a commercial product would offer support for some of the lesser-used forms (like the foreign tax credit).
pswift
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Re: Filing Japanese tax returns (確定申告)

Post by pswift »

Thank you for the review, Karamatsu. It's very helpful. I was looking for something to help me but it looks like I'll be sticking with the free NTA website.
sjones
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Re: Filing Japanese tax returns (確定申告)

Post by sjones »

Thanks for your help bpp.

I thought I had better double check with you guys about my foreign capital gains. They show up on line 64 (未公開分) of page 第三表. I think that is the right spot.

FWIW I use the free online program linked above and it seems to do everything, except the 国外財産調書 which it looks like I need to fill out by hand. Has anyone else found a way to do it electronically?

Thanks,
Karamatsu
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Re: Filing Japanese tax returns (確定申告)

Post by Karamatsu »

Yep, Line 64 is the spot. You'll also want to fill in the detail sheet showing the transactions, and as mentioned above, use the TTM exchange rates on the day of purchase and day of sale to value the transaction in yen. This can lead to some weird effects, where a USD gain turns out to be JPY loss (or the reverse) due to exchange rate fluctuations.

It's surprising the the foreign assets report isn't supported by software (online or otherwise). It's such an obvious thing to automate. But as far as I know, the only option is to fill it in manually, either by hand or with a PDF editor. Either way it's painful.
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Re: Filing Japanese tax returns (確定申告)

Post by nekotikara »

I'm using my "Dividends and Distributions" statement from a US brokerage to help fill out my Japan taxes.

I didn't sell anything in 2013, but this statement includes various transaction types: "qualified dividend", "nonqualified dividend", "long-term capital gain", and "short-term capital gain". Are these all considered dividends (配当) in Japan, or should one use 株式等の譲渡所得 ("capital gain from stocks, etc?") for the capital gains? Concretely, the capital gains are distributions from a foreign bond ETF called BND.

Also listed is "foreign tax withheld" for an international ETF. Is that reportable?
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Re: Filing Japanese tax returns (確定申告)

Post by Karamatsu »

Yes, as far as I know, capital gains distributions from funds are treated as dividends so you'd just add them to your other dividend amounts. On the foreign (non-US) tax withheld, yes also. To avoid double-taxation you can take a foreign tax credit. The exact amount of the credit you can take this year depends on a limitation whose formula is given on the form, and If you aren't able to use the full credit this year you can carry unused amounts forward for three years.
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Re: Filing Japanese tax returns (確定申告)

Post by bpp »

nekotikara wrote:I'm using my "Dividends and Distributions" statement from a US brokerage to help fill out my Japan taxes.

I didn't sell anything in 2013, but this statement includes various transaction types: "qualified dividend", "nonqualified dividend", "long-term capital gain", and "short-term capital gain". Are these all considered dividends (配当) in Japan, or should one use 株式等の譲渡所得 ("capital gain from stocks, etc?") for the capital gains? Concretely, the capital gains are distributions from a foreign bond ETF called BND.
Karamatsu wrote:Yes, as far as I know, capital gains distributions from funds are treated as dividends so you'd just add them to your other dividend amounts.
I can confirm. I happen to hold BND through Nomura Securities, who give me both a 1099 for US taxes, and the Japanese equivalent for Japanese taxes. The Japanese version lumps all distributions together as just 配当, without breaking them out into dividend and capital gains categories the way the 1099 does.
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Re: Filing Japanese tax returns (確定申告)

Post by bpp »

Got a message from SMBC Nikko that the withholding tax treatment of certain JDRs will be changing from September.

(JDRs are foreign securities that trade on the Tokyo Stock Exchange. Think ADRs on the US exchanges by way of analogy.)

The JDRs in question are US-based ETFs. Until now, apparently 30% withholding tax has been taken from dividends and paid to the US. From now, the treaty rate of 10% will be withheld instead -- unless one is a US taxpayer with a W9 on file with SMBC Nikko, in which case no tax will be withheld (declare them on your Schedule B instead). Note that Japanese taxes will still be withheld as usual if outside of a NISA -- this only affects US withholding.

This is actually very good news, and makes JDRs for US-based ETFs much more attractive. No PFIC treatment, and now correct tax treatment. Unfortunately, no Vanguard ETFs trade as JDRs (yet? one can dream...). Still, there are some iShares ETFs available which are not too bad. Tend to be a bit low on the liquidity side, but there should be much less currency-exchange overhead cost incurred than buying directly on US exchanges through Nomura, for example.

Here is the list of JDRs affected:

1581 iShares MSCI Kokusai index (TOK)
1582 iShares MSCI Emerging Markets index (IEMG)
1583 iShares MSCI Frontier Markets index (FM)
1587 iShares S&P100 index (OEF)
1588 iShares Russel 2000 index (IWM)
1589 iShares Morningstar Dividend Focus index (HDV)
1590 iShares Dow Jones US REIT index (IYR)
Last edited by bpp on Mon Aug 24, 2015 8:58 pm, edited 1 time in total.
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Re: Filing Japanese tax returns (確定申告)

Post by LadyGeek »

Does the wiki need to be updated? Investing in Japan
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
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Re: Filing Japanese tax returns (確定申告)

Post by bpp »

LadyGeek wrote:Does the wiki need to be updated? Investing in Japan
Yes, it does. Will work on it.
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Re: Filing Japanese tax returns (確定申告)

Post by Anjin »

This thread is a great resource, thanks to everyone who put it together.

I'll become a resident for tax purposes in November this year (5 years total in Japan), so will have to file a tax return for oversea income next March for the first time. Now what I'm not clear on (even after reading the NTA tax guide for foreigners) is if I have to pay tax on all foreign income in 2016 or only the part received from November onwards, when I became permanent tax resident. Anyone happen to know?

If it is only the part from November onwards then this will be below the 200,000 JPY threshold so I won't actually have to file I think. I could also sell everything up now while capital gains are still tax free and rebuy in November.

Thanks,
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