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. www.pwc.com Tax Insights 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. 2 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. pwc Tax Insights 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 3 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 pwc Tax Insights 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 [email protected] Marcus Wong 81-3-3539-6406 [email protected] Ichiro Kawakami 81-3-3539-6369 [email protected] Global Mobility Services —United States Peter Clarke, Global Leader (203) 539-3826 [email protected] SOLICITATION This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC does do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2015 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. 4 pwc
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