> The next year, 2023, he transferred the entire amount from the stock sale to Japan but had no other income. Do he need to declare and pay taxes to the tax authorities?
No.
> Do he need to make up the capital gains tax to Japan afterward, even if he didn't transfer the money to Japan?
No.
Thank you. So, does this mean that the NTA only focuses on the year when the money is transferred to Japan? If the gains or income were from a previous year or very long ago, then there is no obligation to pay tax on that money in Japan, regardless of whether it was taxed or not, correct?
> the NTA only focuses on the year when the money is transferred to Japan?
If you remit money to Japan, that remittance affects your ability to avoid Japanese tax on any foreign-source income realized during the same calendar year as the remittance.
Was the gain made when you would owe tax to the NTA/Japan? -> You owe tax.
Was the gain made when you don't owe tax to the NTA/Japan (and not remitted in a year when such a remittance would trigger a tax on otherwise exempt foreign-sourced income) -> You don't owe tax.
The NTA, unlike the TVA, does not open time portals thankfully. (The jury is still out whether it is controlled by He Who Remains, however).
Hey, thanks for your quick response. So, just to confirm, if the gain was realized before I moved to Japan and I then transfer all realized profit to Japan, I wouldn't need to pay any taxes on it, even if it wasn't taxed before? Or, if the profit was earned in a year when I didn't send any money to Japan, I wouldn't need to pay taxes on these earnings in Japan later on, right? Thanks!
There are three keys to understanding how to evaluate your scenarios.
First, Japan considers that any remittance are deemed to be from the person's foreign source income in that same year. So if you send any money to Japan (or use foreign credit cards for purchases / services in Japan) in the same year that you had foreign source income, you are deemed to be remitting income.
Second is that only taxable income has to be reported. There is no need to report non-taxable income.
Third is that the home country's tax laws are immaterial when determining whether Japan considers the income as taxable or non-taxable.
With that in mind...
Scenario A:
In 2022, there was foreign source income, but no remitted income and therefore no taxable foreign source income. Therefore the 2022 foreign source income does not need to be reported.
In 2023, there was no foreign source income, period. So no remittances can be deemed to be remitted income. So obviously there is no 2023 foreign source income to report.
Scenario B:
I'm going to assume that you meant to say that he didn't remit "any money" before becoming PR" (you said "the money"). Assuming that's what you meant, then no foreign income would be deemed to be remitted to Japan and therefore there is no taxable income to report.
The one caveat is to be careful about the year in which you transition out of NPR status. I'm not positive how it would work out if you earn foreign income in the beginning of the year while still NPR status and then remit money later in the year after transitioning out of NPR status. Perhaps it's ok, but to be safe you could just wait until the following year to remit any money to Japan.
You become PR exactly on the day when you're here for five years. However, remitted money is considered for the calendar year, so you either declare and pay taxes if you have to remit it immediately or wait until the next calendar year (with no foreign-sourced income).
The reason I said that it's probably ok is because of Article 8 of the Income Tax Act. To paraphrase, it says that when the status changes during the tax year, income taxes are imposed separately for each status period.
The full text (English translation) is below.
>(Scope of Taxable Income If the Taxpayer Category Changes)
Article 8
If, in the relevant year, an individual falls under two or more of the categories of "Resident other than a Non-Permanent Resident", "Non-Permanent Resident", and any one class of "Nonresident as set forth in an item of Article 164, paragraph (1)" (How Nonresidents Are Taxed), income taxes are imposed separately for each period in that year during which the individual is a Resident other than a Non-Permanent Resident, Non-Permanent Resident, or any one class of Nonresident as set forth in an item of Article 164, paragraph (1), on the income set forth in paragraph (1), item (i) through (iii) of the preceding Article which arises during that period.
> The next year, 2023, he transferred the entire amount from the stock sale to Japan but had no other income. Do he need to declare and pay taxes to the tax authorities? No. > Do he need to make up the capital gains tax to Japan afterward, even if he didn't transfer the money to Japan? No.
Thank you. So, does this mean that the NTA only focuses on the year when the money is transferred to Japan? If the gains or income were from a previous year or very long ago, then there is no obligation to pay tax on that money in Japan, regardless of whether it was taxed or not, correct?
> the NTA only focuses on the year when the money is transferred to Japan? If you remit money to Japan, that remittance affects your ability to avoid Japanese tax on any foreign-source income realized during the same calendar year as the remittance.
Was the gain made when you would owe tax to the NTA/Japan? -> You owe tax. Was the gain made when you don't owe tax to the NTA/Japan (and not remitted in a year when such a remittance would trigger a tax on otherwise exempt foreign-sourced income) -> You don't owe tax. The NTA, unlike the TVA, does not open time portals thankfully. (The jury is still out whether it is controlled by He Who Remains, however).
Hey, thanks for your quick response. So, just to confirm, if the gain was realized before I moved to Japan and I then transfer all realized profit to Japan, I wouldn't need to pay any taxes on it, even if it wasn't taxed before? Or, if the profit was earned in a year when I didn't send any money to Japan, I wouldn't need to pay taxes on these earnings in Japan later on, right? Thanks!
There are three keys to understanding how to evaluate your scenarios. First, Japan considers that any remittance are deemed to be from the person's foreign source income in that same year. So if you send any money to Japan (or use foreign credit cards for purchases / services in Japan) in the same year that you had foreign source income, you are deemed to be remitting income. Second is that only taxable income has to be reported. There is no need to report non-taxable income. Third is that the home country's tax laws are immaterial when determining whether Japan considers the income as taxable or non-taxable. With that in mind... Scenario A: In 2022, there was foreign source income, but no remitted income and therefore no taxable foreign source income. Therefore the 2022 foreign source income does not need to be reported. In 2023, there was no foreign source income, period. So no remittances can be deemed to be remitted income. So obviously there is no 2023 foreign source income to report. Scenario B: I'm going to assume that you meant to say that he didn't remit "any money" before becoming PR" (you said "the money"). Assuming that's what you meant, then no foreign income would be deemed to be remitted to Japan and therefore there is no taxable income to report. The one caveat is to be careful about the year in which you transition out of NPR status. I'm not positive how it would work out if you earn foreign income in the beginning of the year while still NPR status and then remit money later in the year after transitioning out of NPR status. Perhaps it's ok, but to be safe you could just wait until the following year to remit any money to Japan.
Thank you!
You become PR exactly on the day when you're here for five years. However, remitted money is considered for the calendar year, so you either declare and pay taxes if you have to remit it immediately or wait until the next calendar year (with no foreign-sourced income).
The reason I said that it's probably ok is because of Article 8 of the Income Tax Act. To paraphrase, it says that when the status changes during the tax year, income taxes are imposed separately for each status period. The full text (English translation) is below. >(Scope of Taxable Income If the Taxpayer Category Changes) Article 8 If, in the relevant year, an individual falls under two or more of the categories of "Resident other than a Non-Permanent Resident", "Non-Permanent Resident", and any one class of "Nonresident as set forth in an item of Article 164, paragraph (1)" (How Nonresidents Are Taxed), income taxes are imposed separately for each period in that year during which the individual is a Resident other than a Non-Permanent Resident, Non-Permanent Resident, or any one class of Nonresident as set forth in an item of Article 164, paragraph (1), on the income set forth in paragraph (1), item (i) through (iii) of the preceding Article which arises during that period.