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[stumptowny]

Yes!! taken from the old GP thread... let it breath life in present day as information sharing is our greatest asset.

its been a year and half since this thread died so things may have changed for the NTA's approach, for better or worse for us aliens.

re-read this amazing thread and something came to mind:

why not just leave japan after 5 years if you are concerned about being audited? no one said this in the original thread. am I missing something?

[Pitarou]

Link, please.

[stumptowny]

Pitarou, I'll do you one better. Here is a solid summary of that massive thread. the link is there if you need it, heaven for bid.

To offer a smoother transition over the year and half gap that exists between the end of the original GaijanPot thread to now, here are the key points from that 52 page beast of a thread. These points are literally taken from that thread, with some color added for your reading pleasure:

Original thread:
http://forum.gaijinpot.com/forum/working-in-japan/banking-finance/82826-be-wary-of-your-investments-the-taxman-is-watching/page1

Victims report this scenario as a warning shot that you are about to be mugged (audited) by the NTA:

First, you'll likely get a polite probe letter from your local city tax office to clarify an amount accompanied with, "don't worry, we just want to double check the correct amounts. Everything is fine." (“a routine questionnaire from the local tax office to explain the source of the income and how it was declared in Japan”) This letter should make the hairs on the back of your neck stand at attention because they have got a whiff of your money and its eatin time.

(No one reported receiving this first letter then being left alone, after answering their bogus question. Was anyone left alone after receiving and taking care of this initial inquiry? Would like to know that scenario.)

Next, the hammer comes down and assesses massive late fees, penalties for the past 5 years (they do this only after you have been in Japan for at least 5 years as they consider you a permanent resident at that point then hit you retroactively to get maximum money from you). They also sink their hooks into you for worldwide assets gains for the years to come but now you are monitored and controlled immediately. No more five year lag time. Victims reported being followed up with for subsequent years to capture gains on worldwide assets.

One article reported that in a rural area, the NTA went to homes, asked to come in, see records, and then proceeded to make photo copies on the spot. All illegal now as they must provide a letter detailing their inquiry first. if they knock, don’t answer.

The facts

Triggers to the NTA to audit you:

1) 5 years in japan or more

2) Large transfers being made in or out of japan.

Reported amounts…

- "On the radar" means remittance transfers over 1,000,000¥ or regular large transfers will trigger the nta to check you out"

- 4-5 transfers per year of 500,000¥ - 1,000,000 over 5 years (= 4,000,000¥ per year roughly)

- 500,000¥ per month, 7- 8 times a year. Total of 5 million yen year

So what’s wrong with large money transfers…

“The nta wants to know what you are doing with transferred money. Multiple large transfers (that may mask money laundering.) if you transfer lower amounts you should be fine.” After they find out your money is going to pay for grandma’s care, and that you aren’t the criminal they assumed you to be, they start the money sucking.

Has anyone not making large money transfers been audited? I don't think there was a case in the original thread where this was true.

Other reported triggers:

- uni profs making 6 million
- anyone close to or in the 33% tax bracket (int. businessmen mentioned)
- then they look at bank transfers in or out of Japan

* nta audited self-employed (mentioned specifically)
* three profs from the same small town (same as above)

See proposed “trigger flow chart” that starts the shake down !! Excellent visual created by a poster. Post #357 from gp link, p. 24

Regarding triggers, this was brought up: do people being nailed by nta have assets in japan (property, land, accounts) that can be seized upon? If so, does nta have more leverage there than with those who do not and are they targeting these people more? They may chase people with more to lose in japan than those that can readily leave. They may choose to not hassle people who they cannot forcibly seize assets from. For which, this answer was provided, proposing how nta might work through their options against you:

1. establish if a debt to the tax agency exists (this could be all from penalties).

2. try and get the taxpayer to voluntarily pay the outstanding tax. If they can, then case closed.

3. If the tax payer cannot/doesn't pay, then determine what other means can be used where the costs do not outweigh the benefits.
The ways they examine are: forgiving the debt (only if there is no money to get), get the tax payer to enter an arrangement to pay installments over time, get tax payers to 'voluntarily' sell their assets like land etc, seize bank account/cash assets, bankrupt or liquidate the individual or business to have asset sale proceeds cover the debt.

"I only know from one case, so this can't be extrapolated. An Aussie owed and still owes a lot. He had and still does send almost all of his money back there and was in the position of not having enough to pay. As he is still here, he was hassled enormously to bring money from there there to pay his "debts," which is to say all of the outrageous penalties. Now his salary has been garnisheed and the interest meter is running. The NTA does have one more card up their sleeve (rarely played except in cases of huge fraud or evasion with criminal intent), and that is prison."

again, why not just leave japan people?! if you are single, kind of a no brainer. especially if its over $4 - 5000USD. $3000 I might give it some thought.. but these cases from the original thread are 10 - 20K!!!!

The rules

Doing it right:

Japanese residency after 5 yrs is considered permanent resident and thus worldwide income has to be declared.

Must declare all cumulative money (domestic and worldwide income + interest on assets) over 20million yen to nta by march 15th” old tax doc from 2010, not 2014/15. May be higher than 20 million yen now. Please update if you know.

“I met a tax consultant from the Tokyo office of Earnst and Young. The guy confirmed that the NTA is definitely more focusing now on income abroad and that related "investigations" are increasing. He also mentioned that they are advising their clients to take the upcoming obligation (as of 1 January 2014) to declare assets above 50 MJPY abroad in their annual tax return (regardless they generate income or not) very serious.”

Tax rate is 20% for capital gains sales made with foreign broker (for cash account only, not ira) tax rate is 10% if your sales are made with a Japanese broker/company. check rates for other income sources. (home sales, property, inheritance, trusts, will, lottery, ect.)

Strategy:

If you use a brokerage account for trading/investing, trade in your IRA as much as possible. Avoid any gains in cash accounts if you can (crazy right?!) sadly, it’s gain in value that is taxed, regardless of if you sold any shares/positions or not. The change in value is taxable. Otherwise, if you just bought and held all shares/positions in your cash account, never selling, nta would get nothing from you and that can never happen now can it.. so they make sure of this. they want tax on any increase in value. Also, losses cannot be used strategically, written off or otherwise. Any losses amount to – 0 – but ALL gains, whether paper gains or actual, incur tax. What a racket!

Doing it wrong:

Late fees and penalties vary depending on your honesty level with the NTA during questioning and if you had knowledge of all this bs and tried to avoid paying intentionally or you can successfully claim ignorance. Common theme of posters was, be honest once they start in with you, but by all means, claim stupidity and don’t talk much. may save you lots in the end. Get a tax accountant to save you further by negotiating your stupidity for not being told any of this by anyone until now, that japan is laying claim to money totally unrelated to them whatsoever (sorry, couldn’t resist. such a monumental shakedown.)

“The penalties for an honest mistake are more lenient in Japan than in the US and in some European countries. Here you pay currently the BoF discount rate (currently zero) + 4.0% interest + 10% to 20% penalty. If it was really an honest mistake and you can credibly explain it, you probably end up with 4.% interest + 10% penalty. And if you come clean by yourself before they audit you, you pay only 4.0% interest on the evaded tax for 3 years and no penalty at all. I'm not sure you find a developed country with a more lenient system.”

IMPORTANT: make sure the tax firm/person is working for you!! To save YOU money. Some posters reported that tax firms are merely sticking to the law, exactly, regardless of you being their paying client. These people don’t get that your goal is to save money and they don’t. so double check or fire them. in the states, these peoples sole purpose is to save you money and that’s what they set out to do.

Of note, one poster was a dissenter from the common theme of, do everything correctly, on time, or else. This person reportedly lied to the NTA when asked, do you have any worldwide assets, telling them no. Then the poster went on refuting NTA’s rights and abilities to access information via the IRS and banks. Much of it was very helpful. What doesn’t hold up is, if the NTA did contact this person, at all, it would mean they had his tax returns already and knew of any reported worldwide assets so telling them “no” would seem moot, correct? Maybe they hadn't actually requested his tax returns from the IRS yet? Not sure what happened…

It would be great to hear of any successes against the NTA akin to this (or anything!) because there doesn’t seem to be any once they catch your money scent, as reported repeatedly in that thread. would be great to say, "nope, got nothing.. move along nta...." after all, they do subtly and politely gain your consent in the beginning. hmmm.

Other compelling bits:

** "They are going through a list of permanent residents, slowly but surely" True but its not a gaijin only thing. It’s a money thing. Nta is catching all with worldwide assets, mostly from Japanese, because this is, uh, japan. not xenophobia, at least on its face..

** J-banks report transfers and nta who then look at where money is going

** "I just called citibank and only transactions over 1 million yen are reported to nta"

** Bank of America reports transactions over $10,000 to nta

** US banks report $3k transfers to irs/homeland security

** strategy for avoiding large money transfers were to physically carry it out of japan when you go home. Or to other countries which may have your bank.

Of note: All this was instituted around the time corporate tax rates were lowered to 5% (2010/11?). So at that time, NTA had more pressure to get money where thay can because the corporations aren't forking over. But these began before other consumption tax hikes from 5% to 8% in April 2014. Perhaps the nta has changed their stance in 2015 because of this tax raise? lightening up on chasing worldwide assets.. doubt it. highly.

Please share your experiences so we can keep each other up to date regarding these matters.

NTA aint updating anybody, nor is your employer who does your taxes.. (go figure that one). or the local and prefectural tax offices who can send you mailings but nothing about this?? how about that memo you got at immigration when you landed at the airport telling you about worldwide asset taxation if you plan to stay in japan?? like everyone conveniently forgot the part that can haul in the most money... hmmm.. how many people are just wandering about their lives, working and contributing to this economy, clueless about any of this and then, BAM!

Lastly, "the US has reciprocal agreements with many nations so that US residents of foreign countries are not taxed twice - I'm almost sure Japan is on that list." Has anyone told this to NTA, flat out, that they are doing it wrong? being totally serious now. Has anyone just told nta, you cannot double tax! in actuality, they are using tax sharing agreements to do the opposite, to double tax capital gains and uncle sam is in on it..

Maybe this should be a sticky??

[kzjohn]

stumptowny,

On first reading, I was going to criticise your summary, but after looking at various parts of it a few different times, I have only minor quibbles with your interpretation of it all, and on the whole, you've done a great job of condensing what was in that thread.

I'd've done it differently, of course, but there's no "right" here, and (tho it has been a while) I very much appreciate being able to read your interpretation of that thread, and the effort that went into the summary.

Actually, I thought that the thread had been lost, since gaijinpot closed their forums. It's wonderful to see that it is still available/viewable.

Thanks!

[rxk22]

[Maitoshi]

Does Japan recognize the tax exempt status of capital gains within Roth accounts?

[rxk22]

[G Cthulhu]

[stumptowny]

Nice find G Cthulhu. Thank you

Here is the detailed explanation (in legalese) of the various instruments / investment vehicles being taxed with corresponding page numbers.

Link is: http://www.irs.gov/pub/irs-trty/japante04.pdf

Article 6 (Income from Real Property) p. 25
Article 7 (Business Profits) p. 26
Article 8 (Shipping and Air Transport) p. 33
Article 9 (Associated Enterprises) p. 35
Article 10 (Dividends) p.40
Article 11 (Interest) p. 49
Article 12 (Royalties) p. 56
Article 13 (Gains) p. 60
Article 14 (Income from Employment) p. 63
Article 16 (Artistes and Sportsmen) p. 67
Article 17 (Pensions, Social Security, Annuities, and Support Payments) p. 71
Article 23 (Relief from Double Taxation) p. 90
Article 26 (Exchange of Information) p. 106