TT-887 -- Recent Tax Developments, Including Inheritance Tax Rising to 55%, ebiz news from Japan

An Insider's comments on Japan's high tech business world
* * * * * * * * 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.
(http://www.terrielloyd.com)

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
Okinawa
- News Credits

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+++ WHAT'S NEW

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
criteria:

* 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 business people 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)

http://bit.ly/2mAec5u

=> 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)

http://bit.ly/2nj5iri

=> 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)

http://bit.ly/2nt4dfR

=> 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)

http://bit.ly/2mfpp8c

=> 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)

http://s.nikkei.com/2myWxcB

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.

***------------------------****-------------------------***

--------- From Veggie Burgers to Carrot Cake --------------

Our commitment at Alishan Organics is to give our customers the best of
western organic foods, but prepared with a Japanese twist. That's why
our menus cover such a broad range of styles and tastes. If you're just
getting to know us, why not visit our cafe by the river in Saitama? That
way you can try out a variety of dishes and decide for yourself. Choose
from an Amy's organic pizza straight from the oven, a mouthwatering
veggie burger packed with seasonal greens and reds, or if you're feeling
chilly, a filling vegetable curry with rice. And although we're healthy
minded, we don't skimp on desserts. Favorites include Jack's scrumptious
carrot cake, vegan brownies (of course with vegan ice cream), and baked
banana cheese cake.

Our Cafe: http://bit.ly/2m0r8z7
-----------------------------------------------------------

+++ UPCOMING EVENTS

------------------ 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
150-0047)
Fee: ¥5,000 (Spaces are limited so please RSVP ASAP please.)
RSVP: Cristina Merino Cristina.Merino@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
-----------------------------------------------------------
***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

** No corrections or feedback this week.

***------------------------****-------------------------***

+++ TRAVEL DESTINATIONS PICKS

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.

http://bit.ly/2mWULVh

=> 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.

http://bit.ly/2lQyx7V

***------------------------****-------------------------***

***********************************************************
END

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+++ ABOUT US

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

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