2015 Tax Reform Proposal and its impact on individual

Tax Insights
from Global Mobility
Japan: 2015 Tax Reform Proposal
and its impact on individual
taxpayers in Japan
February 4, 2015
In brief
The 2015 tax reform proposal, known as Taiko (Tax Reform Proposal), was approved by the ruling
parties on December 30, 2014. The proposed tax law changes are expected to pass in the Diet without
significant changes in March, 2015.
This Tax Insight highlights provisions of the Tax Reform Proposal that could potentially impact
individual taxpayers in Japan. The proposals likely to have the greatest impact on mobile individuals
include (i) the ‘exit tax’, (ii) changes in the Assets & Liabilities statement, and (ii) additional
requirements to claim deductions for dependents who reside outside of Japan.
Other proposed changes include the introduction of Nippon Individual Savings Account for minors
(Junior NISA), the increase in the amount of tax exempt investments allowable in NISA, the easing of
conditions to claim a tax credit for donations made to prefectural and municipal governments (Furusato
nozei), additional relief on the waiver for penalty taxes on tax returns filed late, and other miscellaneous
changes with respect to the home loan credit and gift taxes.
In detail
New ‘exit tax’ on individuals
from July 2015
The 2015 Tax Reform Proposal
introduces a new exit tax for
individuals leaving Japan.
For this purpose, an “exit”
means when an individual no
longer has a “jusho” (principle
place of residence) or a “kyosho”
(temporary place of abode) in
Japan. At the time of the exit,
the individual will be subject to
capital gains tax (15.315% tax
rate in 2015) on the unrealized
gain on securities and derivative
transactions as if the individual
sold or settled the transaction at
the fair market value on the exit
date. The new rule will be
applicable to exits, donations
and inheritances of such
property made by a Japanese
resident on or after July 1, 2015.
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Affected Taxpayers
Assets subject to exit
taxation
Filing requirements
for tax report
Residents who meet both of the following conditions:
Value of assets subject to exit taxation at the date of departure is 100 million yen or more.
Within 10 years of exit, the individual has maintained a jusho or a kyosho for more than five
years. [Note - Time living in Japan under a visa status under ‘Table 1’ of the Immigration
Control law is not included (e.g., specialists in the humanities/international services, intracompany transferee, temporary visitor, etc.).]
Securities as defined in the individual tax law, ownership of tokumei kumiai contracts and
unsettled derivative transactions, credit transactions and hedging transactions for stock risks
trading.
By the due date of the final tax return to be filed by a registered tax administrator of the taxpayer
(valuation date is the exit date). An application to extend the due date for paying the exit tax is
possible.
OR
Rescission of
taxation by return to
Japan within five
years
Transfer by donation
or inheritance to a
non-resident
In a ‘short period’ tax return which is due upon exit (if no tax administrator is appointed), in which
case, the valuation date is three months prior to the expected exit date and the exit tax is due on
the exit date.
If the taxpayer returns to Japan within five years of exit and did not sell the assets during the time
outside of Japan, the exit tax on such assets will be cancelled upon the filing of a return by the
taxpayer within four months of the return date.
Donor/decedent is deemed to have sold or settled the derivative or the securities on the date of
transfer for purposes of the tax return filing.
For further details, please refer to our recent Insight which focuses on this topic.
Changes in Assets & Liabilities
Statement
Currently, individuals whose taxable
income in the year exceeds 20 million
yen are required to disclose their
world-wide assets and liabilities on
the form ‘Zaisan Saimu Meisaisho’
(Assets & Liabilities Statement).
Effective from January 1, 2016, this
form will be renamed to ‘Zaisan Saimu
Chosho’ (Assets & Liabilities
Reporting). Additional criteria will be
instituted to determine whether there
is a requirement to file this form. In
addition to the current condition on
the amount of taxable income, only
individuals who have assets with a fair
value of 300 million yen or more, or
assets subject to the exit tax
amounting to 100 million yen or more
as of December 31st would be required
to file this form.
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This change should reduce the
number of individuals subject to this
reporting obligation. However, for
individuals who are required to file
this form, additional information
would need to be disclosed such as the
location of the assets, names of
securities, etc., in a similar manner to
the Overseas Assets Reporting form.
Furthermore, similar to the Overseas
Assets Reporting form, penalty taxes
on underpaid income tax and
inheritance tax will either be
increased or decreased based on
whether the Assets & Liabilities
Report has been properly completed
and filed.
Deduction for dependents
residing outside Japan
Effective from January 1, 2016,
verification documents are required in
order to claim dependent deductions,
spouse deductions, special spouse
deductions, or disability deductions
for dependents who are non-residents
of Japan. The additional
documentation would be required for:
1) verification of family, and 2)
verification of remittances.
The verification of family should be
either: 1) a copy of family registration,
or other documents issued by the
Japanese government or its
subdivision that would verify that the
claimed dependent is a family
member of the taxpayer, and a copy of
the dependent’s passport, or 2) a
document issued by a foreign state or
its subdivision that would verify the
family, which indicates the name of
dependent, address and date of birth.
The verification of remittance is to
verify that the taxpayer has made
necessary payments to the nonresident dependent to be used for
their daily living and education costs.
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The verification document should be
either: 1) statements issued by a
financial institution that would show
remittances made to the family
member, or 2) credit card statements
that shows the family member’s usage
for purchasing goods, etc., from the
taxpayer’s funds.
These documents are required to be
attached to income tax returns or
presented to the tax authorities with
income tax returns. However, in
general, for employees or individuals
receiving pension payments, the
family verification should be
submitted or presented to the payers
of salary or pension when they receive
payments subject to tax withholding.
Employees are required to submit or
present to the employer the
remittance verification when their
year-end withholding adjustment is
conducted. For forms that have been
submitted or presented for
withholding tax purposes, they are not
required to be attached / presented
when the income tax returns are filed.
Introduction of Junior NISA
Under the current NISA system, only
resident individuals 20 years or older
at the beginning of the year are
eligible to open NISA accounts. In
order to promote those investments as
a form of savings, a new tax exempt
account for those under the age of 20
at the beginning of the year is to be
created (to be referred to as ‘Junior
NISA’).
Between 2016 – 2023, resident
individuals under the age 20
(including children under 20 years old
at the beginning of the year and
infants born in the year) may open a
Junior NISA tax exempt account.
Investments may be made in listed
shares of up to 800,000 yen annually,
the same as a regular NISA. Tax
exemption for dividends and capital
gains arising on the listed shares is
available for up to 5 years from the
initial investment year. Because this
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system is designed to promote longterm investment for the child’s future,
withdrawal will be restricted until the
eligible person turns 18 years of age.
Establishment of Junior NISA
accounts will be available from
January 1, 2016, and the tax exempt
treatment will be applicable on or
after April 1, 2016.
Increase in amount of tax exempt
investments in NISA
The tax exempt contribution amount
for NISA will be increased from 1
million yen to 1.2 million yen per year
from 2016.
Easing of conditions to claim tax
credit on donations to local
government (Furusato nozei )
The following measures will be
implemented regarding the tax credit
on donations to a local government: 1)
The limitation on the credit will be
increased to 20% of local inhabitant’s
tax compared to the current limitation
of 10% and 2) the requirement to
claim the credit through the filing of
an income tax return will be
eliminated.
To simplify the procedures for
individuals who do not have a tax
filing obligation, a “One-stop Special
System for Furusato Nozei” will be
established. The local government
receiving the donation will make a
request for a tax credit on behalf of
the applicable individual to the
municipal where the taxpayer resides,
thereby allowing the individual to
claim the credit without filing a tax
return. These revisions will come into
effect for qualifying donations made
on or after April 1, 2015.
Late filing of the tax returns
without subject to the penalty tax
Under the current tax law, taxpayers
who file tax returns within 2 weeks of
the filing due date and are deemed to
have had an intention to file by the
due date are not subject to a 5%
penalty tax for late filing. Under the
2015 Tax Reform Proposal, this ‘grace
period’ will be extended to one month.
This amendment will be applicable for
national and local tax returns where
the deadline applies on or after April
1, 2015 (i.e., the 2016 individual
income tax returns for calendar year
individual taxpayers).
Home loan credits and the gift tax
Home loan credits that are currently
available until December 31, 2017 will
be extended until June 30, 2019.
Regarding the gift tax:
 The current measure of nontaxable treatment of gifting funds
from lineal ascendants to acquire
homes will be extended to June 30,
2019 with different amounts of
limitation of non-taxable amount
depending on the types of
residential buildings and when the
house will be purchased.
 Non-taxable treatment of gifting
funds from lineal ascendants for
marriage-related expense (e.g.,
wedding, housing and moving),
and raising children (including
maternity, childbirth, medical
expense for children, and childcare
cost) will be newly introduced.
Gifted amounts up to 10, 000,000
Yen (3,000,000 Yen for marriage)
during April 1, 2015 to March 31,
2019 will be exempted from gift
tax.
The takeaway
The most prominent 2015 tax reform
proposals are directed at wealthy
Japan residents, and consist of a mix
of gifting tax breaks and some
provisions that will likely be
unfavourable to mobile individuals.
The proposed exit tax is designed to
close a perceived tax loophole for
departing residents who hold
considerable financial assets with
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unrealized gains. And to increase
income and inheritance tax
compliance to many of these same
wealthy individuals, the Asset &
Liability Reporting form is requesting
more detailed information with new
penalty applications.
Other notable proposals provide some
tax breaks for gifting to spur
spending, particularly to bolster the
housing market which became rather
sluggish following the rise in
consumption taxes in April 2014.
Let’s talk
For a deeper discussion of how this issue might affect your business, please contact your regular PwC Global Mobility
Services professional or one of the following professionals from PwC Japan:
Global Mobility Services —Japan
Nasir Majid
81-3-3539-6310
nasir.majid@jp.pwc.com
Marcus Wong
81-3-3539-6406
marcus.wong@jp.pwc.com
Ichiro Kawakami
81-3-3539-6369
ichiro.kawakami@jp.pwc.com
Global Mobility Services —United States
Peter Clarke, Global Leader
(203) 539-3826
peter.clarke@us.pwc.com
SOLICITATION
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