Terrie's Take 887 -- Recent Tax Developments, Including Inheritance Tax Rising to 55%, ebiz news from Japan

Terrie's Take terrie at mailman.japaninc.com
Mon Mar 13 01:35:20 JST 2017

* * * * * * * * TERRIE'S TAKE - BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term 
technology and media entrepreneur living in Japan. 

General Edition Sunday, March 12, 2017, Issue No. 887

- What's New -- Recent Tax Developments, Including Inheritance Tax 
Rising to 55%
- News -- Airbnb law is ready for vote
- Upcoming Events - KEA event in Tokyo
- Corrections/Feedback
- Travel Picks -- Thai food in Kichijoji, Mysterious Nakajin castle in 
- News Credits

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It's tax season again, and over the last few weeks we have heard more 
about tax than any other topic (well, apart from Trump perhaps). This 
year, senior foreign residents have had more than usual to worry about, 
because Japan is about to join a new international tax initiative called 
the Common Reporting Standard (CRS). The CRS is subscribed to by 101 
countries including the Cayman Islands (but surprisingly, not the USA). 
So for the first time, the National Tax Agency (NTA) will have 
unfettered access to the overseas financial records of both its citizens 
and its tax residents. The people most affected are those earning more 
than JPY20MM a year and/or those with more than JPY50m of assets 
overseas - i.e., most of the CEOs and senior management of large foreign 
firms operating in Japan.

Basically there are four new-ish rules which have taken effect between 
2013 and this year, which are making the biggest impact on tax resident 
foreigners (not just permanent residents). One wonders why Japan can't 
see that these new rules are having a considerable chilling effect on 
foreign investment, in return for their getting a minimal increase in 
tax revenues. In fact, these new taxes have driven away pretty much all 
the big foreign hedge fund operators who used to operate (and pay income 
tax) here. They, along with other smart money left Japan several years 
ago to avoid being subjected to some of the highest Inheritance and Exit 
taxes in the world.

For those of us not in the wealthy bracket, what's all the fuss about? 
Well, that's a fair question, but what if you have a relative overseas 
who suddenly dies and leaves you US$1,000,000 then you'll be affected. 
Even though good old Aunt Gracie and her house she left you are abroad, 
you are here and will be taxed an inheritance tax rate of 10%-30% on 
that amount (up to 55% depending on the actual amount left). So these 
changes affect even people living within modest means.

Let's look at the actual taxes in question:

1. Assets and Liability Reports (ALR). From March last year, all 
foreigners earning more than JPY20m annually in Japan, or who are tax 
resident and own more than JPY300m of assets abroad, have been required 
to complete the NTA's (then) newly introduced ALR form. The filing 
deadline for FY2016 is this coming Wednesday (March 15, 2017). There is 
no penalty for not filing this report, BUT, there is another report that 
all tax residents have been required to file since 2013. This second 
form is called an Overseas Assets Report (OAR) and is required of ALL 
foreign tax residents who have overseas assets valued at more than 
JPY50m. If you're filling out an ALR, you don't need to fill out an OAR, 
but clearly if you have not done an ALR, then if you meet the personal 
wealth test you're supposed to at least be completing the OAR. And the 
penalty for not doing so is intimidating - a fine of JPY500k or up to 
one year in jail.

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[...Article continues]

Yes, it's the jail part of the penalty that has caught the attention of 
many senior long-term foreign residents in Japan. What's amazing is that 
this legal requirement is so poorly broadcast that the Tax Office 
doesn't even have an English-language page covering the rules. Hence, 
for many people this tax reporting is recent news - thanks to awareness 
seminars on the subject conducted by local tax firms.

2. Exit Tax. From July 2015 all foreigners with a "Jusho" (tax residence 
- better explained below) in Japan for more than 5 years and who will 
leave Japan permanently will be charged an Exit Tax if their combined 
assets are worth more than JPY100m. A tax of 15.315% will be applied to 
the unrealized gains calculated for the assets. In practice this tax 
mostly targets wealthy permanent residents, especially those with 
Japanese families. If you have noticed certain high-profile fund 
managers relocating to Hong Kong in the last couple of years, this is 
the main reason for their departure. It's also a big reason why we don't 
see new foreign fund managers moving to Japan.

3. Inheritance Tax. From January 2015 all foreigners with a "Jusho" in 
Japan for any period of time not only have to pay inheritance taxes on 
Japanese assets, but now on all assets held globally. This is one part 
of the new tax regime which has a lot of people up in arms, because the 
definition of Jusho is not clear and could even be interpreted to mean 
someone working on an intercompany transfer visa in their first year of 
assignment. Therefore, if that person was to die while assigned here, 
even though his/her surviving family were living in their home country 
they would still be subject to the inheritance tax. This would certainly 
be a shock to families which live in jurisdictions where there is no 
inheritance tax (see the list of 34 countries below)!

Then, to rub the salt into the tax wound, the exemptions for inheritance 
tax also shrank, from JPY50m plus JPY10m per heir, to just JPY30m plus 
JPY6m per heir. Furthermore, the top tax rate for inheritance was 
boosted to 55%, the world's highest, which applies to estates worth more 
than JPY600m. BTW, gift tax allowances also shrank dramatically, so 
giving the cash to your kids to reduce your net worth isn't going to work.

4. Beneficial Owner's Tax. This is a new law that seeks to stop tax 
residents in Japan from setting up shell companies abroad and paying out 
royalties to the individual as a beneficiary. This new tax will take 
effect from April this year (2017). Whereas until now, companies in 
jurisdictions with tax rates of 20% or more and where the Japanese tax 
resident had less than majority control were considered exempt from any 
special taxes, from April this all changes and there will be no 20% 
threshold, nor will there be any minority holding exemption. Instead, 
ALL shares in all companies abroad held by Japanese tax residents will 
be counted as a taxable benefit to the resident. One more loop hole closed.

So what makes you a tax resident person?

According to various tax firm websites we viewed, you can be considered 
as having a Jusho (tax residency) in Japan if you meet the following 

* Country where one makes one's home
* Intended duration of stay in Japan (i.e., type of visa), generally at 
least one year - although this is now in doubt
* Location of immediate family
* Social and employment connections
* Location of assets and economic interests

Why is the Japanese Tax Agency cracking down on foreigners now? 
Especially when the government is making an effort to attract high-value 
immigrants to settle here? Our take is that this latest slew of tax 
regulations could be called the "Takefuji Revenge". We say this because 
of the well-known case of the NTA losing a judgement against the son of 
late loan-shark Yasuo Takei (who owned Takefuji). The son, Toshiki 
Takei, was able to live in Hong Kong for 3 years, receive JPY160bn in 
Takefuji shares from his parents while there, then return to Japan 
without paying  gift tax of JPY130m. The Tax Office had him arrested in 
2005 on tax avoidance, but after a determined court battle that went all 
the way to the Supreme Court, Takei was found innocent in 2011. So, now 
in FY2016, the minimum period a Japanese or permanent resident would 
have to live overseas to avoid taxation in Japan will be 5-10 years 
(with 10 years being safe). And of course you should not qualify as 
being tax resident during that period.

Are these rules fair to foreigners living in Japan? Well, not really. If 
you look at how other countries treat Japanese nationals living there, 
they certainly get a much better deal:

* Australia, Austria, Canada, China, Czech Republic, Hong Kong, India, 
Israel, Mexico, New Zealand, Norway, Portugal, Russia, Singapore and 
Sweden there is no inheritance tax and thus Japanese expats are not 
subject to death taxes there. Of course they pay at home in Japan.
* UK, Ireland and Turkey, the estates of Japanese living in these 
countries for any lengthy period of time are not taxed on global assets 
if they die. In contrast, as mentioned above, from last year Japanese 
and tax resident foreigners here are being taxed on global assets.
* Belgium, Denmark, Finland, Germany, Indonesia, Italy, Luxembourg, 
Netherlands, Philippines, Poland, South Africa and Spain there are 
inheritance taxes, ranging from a few percent to 34%.
* US and France the inheritance tax rate is up to 40% in the USA and 45% 
in France, but exemptions are also high, being as much as US$5.43m in 
the USA. This compared to that measly JPY30m here in Japan.
* South Korea charges an inheritance top tax rate of 50%, still less 
than Japan's top rate.

Yeah, so if you're hoping for a financial windfall in the next couple of 
years from old Aunt Gracie, or are not feeling well, you might want to 
try moving/dying back home if possible... because the tax laws for 
successful businesspeople in Japan just got quite bleak.

...The information janitors/


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+++ NEWS

- Yup, the Olympic costs are out of control
- Ishihara pushes back with lawsuit threat
- Saudi King arrives in Japan
- Airbnb law is ready for vote
- NTA becomes imaginative in tax hunt

=> Yup, the Olympic costs are out of control

Back in 2013 while Tokyo was bidding for the Olympics, we forecast that 
they'd never keep to the original budget (http://bit.ly/2mfmLPA). We 
made that forecast based on the fact that the last two Olympics at the 
time were 420% and 370% over budget respectively, and besides, Japan's 
yen was headed for a prolonged weakening thanks to the Abe government's 
strategy of flooding the country with government debt. Sure enough, we 
are now being told that the 2020 Tokyo Olympics and Paralympics are 
expected to cost about JPY3trn (US$26bn), while the anticipated spending 
in the bid was just JPY1.8bn. Partly to blame for the cost overrun is 
the swelling cost of the main Olympic stadium, which is already running 
double the original budget. ***Ed: The one thing we can be sure of is 
that the burden of paying for this will appear in Tokyo taxes.** 
(Source: TT commentary from dw.com/japantimes.co.jp, Oct 16, 2016/Mar 
10, 2017)


=> Ishihara pushes back with lawsuit threat

You can tell that former Tokyo Gov. Shintaro Ishihara is cornered when 
he comes out fighting. He has said that he will sue incumbent Governor 
Yuriko Koike for countermanding his decision to move the Tsukiji fish 
market to the new Toyosu site. Ishihara sent a press release to the 
media last Tuesday vowing to see Koike in court if she continues to hold 
up the move. ***Ed: Ishihara has of course been called to testify in 
front of an investigative committee about why the fish market was to be 
moved to an environmentally contaminated site without adequate remedial 
work and complete safety checks. But there is probably more to it. Our 
guess is that this investigation could be the first of several, with the 
penultimate probe being into the failed ShinGinko organization and 
Ishihara's accountability for his pet project losing a billion dollars 
of tax payer money. If there is dirt, that is where they will find it.** 
(Source: TT commentary from the-japan-news.com, Mar 08, 2017)


=> Saudi King arrives in Japan

In the first royal visit in the last 46 years, the Saudi King arrived in 
Japan today with his massive entourage, said to be around 1,500 family 
members and staff. The King is here to discuss energy, security, and 
investment and will meet with both emperor Akihito and PM Abe. Of 
particular interest to both sides is the upcoming Aramco IPO, which 
Japan has indicated an interest in investing in. The IPO is expected to 
be one of the biggest globally, surpassing the US$25bn raised by Alibaba 
in 2014. ***Ed: As mentioned, the King's entourage is massive, requiring 
more than 1,000 hotel rooms and 500 limousine cars to accommodate them. 
So if you're looking for a hotel in Tokyo this week and can't find one, 
now you know why!** (Source: TT commentary from nippon.com, Mar 10, 2017)


=> Airbnb law is ready for vote

A Japanese government cabinet meeting has forwarded a bill to parliament 
lifting a ban on home-shared tourist accommodation ("Minpaku") across 
Japan. The new bill will include some concessions to hoteliers, such as 
a 180 nights a year limit for room owners, and adequate hygiene and 
safety measures. ***Ed: This bill will be epoch-making in that it will 
create a major new source of income for households in the economically 
challenged countryside of Japan. Our guesstimate is that the earnings by 
minpaku owners will be worth more than JPY2trn annually within 3 
years.** (Source: TT commentary from nippon.com, Mar 10, 2017)


=> NTA becomes imaginative in tax hunt

In an attempt to stem the flow of taxable profits to low-tax 
jurisdictions overseas, Singapore and HK in particular, the Japanese tax 
office has come up with an imaginative way to claw some back. Now it's 
going to require companies that shift Japan-created Intellectual 
Property (IP) to offshore vehicles to prove that they didn't make more 
than the forecast gains from that IP. If the gains over a five-year 
period exceed 20% more than forecast, the firm will be taxed on the 
difference here in Japan. ***Ed: This is going to be a thorny issue - as 
if transfer pricing wasn't already difficult enough. One probable 
outcome is that creative Japanese companies will very early on, and 
before patent application, move the invention management to researchers 
located in a low-tax jurisdiction, so that the IP can be claimed to be 
invented there.** (Source: TT commentary from asia.nikkei.com, Mar 10, 2017)


NOTE: Broken links
Some online news sources remove their articles after just a few days of 
posting them, thus breaking our links -- we apologize for the inconvenience.


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------------------ KEA Tokyo Inspire Event ----------------

Kea is a global community of Kiwis and friends of New Zealand that 
exists to inspire, connect and enable a borderless nation of one million 
advocates, champions and storytellers for New Zealand. The organization 
is hosting a joint event with the ANZCCJ chamber, to bring together the 
New Zealand community here in Japan. Keynote speaker will be Terrie 
Lloyd talking about lessons learned in the inbound travel sector.

Date: 17:30-19:30, Tuesday 14th of March
Where: New Zealand Embassy, Tokyo (20-40 Kamiyama-cho, Shibuya-ku, Tokyo 
Fee: ¥5,000 (Spaces are limited so please RSVP ASAP please.)
RSVP: Cristina Merino Cristina.Merino at anzccj.jp

----------- ICA Event - Thursday 23rd March ---------------

Speaker: Thomas Nevins - Founder and Chief Consultant. TMT Inc
Title: "Doing Hard Labor in Japan"

Details: Complete event details at http://www.icajapan.jp/
Date: Thursday 23rd March, 2017
Time: 6:30pm Doors open
Cost: 1,000 yen (members), 2,000 yen (non-members). Open to all. No sign 
ups at the door!!!!!!!
RSVP: By 5pm on Monday 20th March 2017
Venue: Room F, 9F, Sumitomo Fudosan Roppongi Grand Tower, 3-2-1 
Roppongi, Minato-ku, Tokyo, 106-0032


** No corrections or feedback this week.



Sukhothai Restaurant, Kichijoji
Lunch at one of Kichijoji's best Thai restaurants

Sukhothai, one of the many famous restaurants in the charming Kichijoji 
neighborhood, serves up flavorful, authentic Thai food at reasonable 
prices. I stopped in for lunch, and was extremely satisfied with the 
delicious meal and pleasant atmosphere. Located a short walk from 
Kichijoji station, just past the end of Sunroad West, the restaurant's 
bright pink signs will beckon you in from the street. Descend the 
staircase down to the basement level, pass through the wooden beads 
hanging in the doorway, and you will arrive in the small dining area, 
tastefully decorated with Thai-style decor.

The lunch menu at Sukhothai is a great deal. It is limited to seven 
choices, including classic Thai dishes such as pad thai, chicken fried 
rice, and sen yai noodles with or without soup. All lunch plates are 
around ¥1,000 and include oolong tea, salad, soup, and ice cream. The 
dinner menu has many more options to choose from, and most plates are 
around ¥1500. The restaurant serves several Thai beers including Singha, 
Chang, and Phuket, and various other alcoholic beverages.


=> World Heritage Nakijin Castle, Okinawa
The three kings of the Ryukyu Islands

In the fourteenth century an ancient people built a fortification, with 
large stones accurately piled high above the sea, one that was largely 
hidden to the world. Halfway across the globe on the other side of the 
Pacific, another ancient people also built a similar stone fort.

These two places, so far from each other, yet shrouded in mystery, are 
Machu Pichu and Nakijin. Both lie in ruins, but remain a testament to 
the ingenuity of their cultures. Even today, there are archaeological 
digs underway uncovering previously hidden stories of these ancient 
people's everyday practices, culture and spiritual beliefs. For example, 
a dig in the 2007 to 2009 discovered a square fire pit, complete with 
remains of carbonized rice and wheat seeds.

More recently, four Roman coins were found by archaeologists in nearby 
Katsuren Castle, something that astounded many journalists, but not 
entirely surprising given Naha was a port used in that period to trade 
with China, Siam and points further west. Nevertheless, we still don't 
know who constructed Nakijin, though the excavations show that it was 
started in the 13th century. The fact that it took over a hundred years 
to complete meant that the generation who started it did not see it 
finished, but it was of such monumental importance that the next 
generations took over the construction as their life work.




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Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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