Need to declare overseas dividends if living in Japan for less than 5 years?

[kanpanela]

According to the law who has to declare overseas dividends? What is the exact rule?

Is it 5 years of resident in Japan?
Is it having permanent residency?
Is it an OR relation of them?

Where can I confirm this information?

I have seen all possibilities in one circumstance or the other. I would be glad to know the final answer as of 2021 (of course 2022 and onwards the
rule might change)

Thanks for the help!

[TBS]

My understanding is the following. Visa permanent residency (eijuuken) and permanent tax residency are two different things. The former is not relevant for this question. These people have to declare and pay appropriate taxes on overseas dividends:

- Permanent tax residents (5 years or more residing within Japan in the last 10 years)
- Non-permanent tax residents on the portions of the overseas dividends they remit to Japan within the tax year
- Japanese nationals living in Japan (they are permanent tax residents)

Some relevant NTA guidance documents are here and here.


Obliquely relevant: if your overseas dividends mean your total foreign assets exceed 50 million yen, you then have to report those assets to the tax office.

[TBS]

Yea, the date you become a permanent tax resident is important. If it is part way through the tax year, you do not have to pay taxes on the dividends received before this date (assuming no remittances during the tax year). You can claim periods of non-permanent tax residence by attaching this form and the evidence it requests to your tax return.

[kanpanela]

Thanks TBS and OkLah!

That was really helpful!

Especially TBS' links, I could confirm what you guys said in both Japanese (非永住者) and in English (non-permanent resident).

Thanks for the help!

P.S. I wish my overseas assets exceeded 50mil yen

[TBS]

My understanding is the following. Visa permanent residency (eijuuken) and permanent tax residency are two different things. The former is not relevant for this question. These people have to declare and pay appropriate taxes on overseas dividends:

- Permanent tax residents (5 years or more residing within Japan in the last 10 years)
- Non-permanent tax residents on the portions of the overseas dividends they remit to Japan within the tax year
- Japanese nationals living in Japan (they are permanent tax residents)

Some relevant NTA guidance documents are here and here.


Obliquely relevant: if your overseas dividends mean your total foreign assets exceed 50 million yen, you then have to report those assets to the tax office.

Just going to add a further note of clarification here as tax law changes in 2017 widened the taxation scope on non-permanent tax residents. They now have to pay capital gains tax on listed overseas stocks bought and sold while a non-permanent tax resident after April 1 2017. This applies even if they do not remit the proceeds to Japan. See more here. This is because, in an incredibly bad use of language, the law no longer classifies these capital gains as "foreign source income" (国外源泉所得), but as "non foreign source income" (国外源泉所得以外の所得 or 非国外源泉所得).

Fortunately overseas stock dividends were not subject to the change and still count as "foreign source income", thus non-permanent do not have to pay taxes on them unless they are remitted. More details in these blog posts.

[kanpanela]

Just going to add a further note of clarification here as tax law changes in 2017 widened the taxation scope on non-permanent tax residents. They now have to pay capital gains tax on listed overseas stocks bought and sold while a non-permanent tax resident after April 1 2017. This applies even if they do not remit the proceeds to Japan. See more here. This is because, in an incredibly bad use of language, the law no longer classifies these capital gains as "foreign source income" (国外源泉所得), but as "non foreign source income" (国外源泉所得以外の所得 or 非国外源泉所得).

Fortunately overseas stock dividends were not subject to the change and still count as "foreign source income", thus non-permanent do not have to pay taxes on them unless they are remitted. More details in these blog posts.

Appreciate the clarification!
I do not plan to sell anything for years and years to come so it does not apply to me YET, but I am interested in learning and understanding.

From this link: https://www.pwc.com/jp/en/taxnews-inter ... 511-en.pdf

I could not copy paste so please excuse me. At the first paragraph on page 3, it says that under the double taxation treaty, if you were taxed on capital gains in the other country Japan will still consider this as foreign income, and so no need to declare.

So it sounds like even if I were to sell, since the US tax capital gains at source nothing would really change even with this revision, is this correct?

[TBS]

Appreciate the clarification!
I do not plan to sell anything for years and years to come so it does not apply to me YET, but I am interested in learning and understanding.

From this link: https://www.pwc.com/jp/en/taxnews-inter ... 511-en.pdf

I could not copy paste so please excuse me. At the first paragraph on page 3, it says that under the double taxation treaty, if you were taxed on capital gains in the other country Japan will still consider this as foreign income, and so no need to declare.

I am not familiar with the details, but yes that what that paragraph suggests - it depends on the specifics of the taxation agreement and the other country's tax laws.

Looking at your previous posts, your case appears complicated - US Vanguard products held via an Australian bank in a joint name account? So potentially three countries' tax rules involved? You asked a hypothetical question, but if you are planning to stay long-term in Japan and became a permanent tax resident at some point, it might be worth seeking professional advice on this, or at least speaking to the local tax office and reading up on the relevant taxation treaties. Most non-US nationals here find it easier tax reporting-wise (and often cheaper) to invest via Japanese brokers. It might be worth bringing your assets over before or around the time your Japan tax status changes.

So it sounds like even if I were to sell, since the US tax capital gains at source nothing would really change even with this revision, is this correct?

I read that via Interactive Brokers, the US does not withhold capital gains taxes at source on its non-US national non-US resident customers. Again, check the details if this affects you.

[TokyoWart]

So it sounds like even if I were to sell, since the US tax capital gains at source nothing would really change even with this revision, is this correct?

My understanding is that the US taxes dividends at source but not capital gains.

[kanpanela]

I am not familiar with the details, but yes that what that paragraph suggests - it depends on the specifics of the taxation agreement and the other country's tax laws.

Looking at your previous posts, your case appears complicated - US Vanguard products held via an Australian bank in a joint name account? So potentially three countries' tax rules involved? You asked a hypothetical question, but if you are planning to stay long-term in Japan and became a permanent tax resident at some point, it might be worth seeking professional advice on this, or at least speaking to the local tax office and reading up on the relevant taxation treaties. Most non-US nationals here find it easier tax reporting-wise (and often cheaper) to invest via Japanese brokers. It might be worth bringing your assets over before or around the time your Japan tax status changes.

I read that via Interactive Brokers, the US does not withhold capital gains taxes at source on its non-US national non-US resident customers. Again, check the details if this affects you.

> You asked a hypothetical question, but if you are planning to stay long-term in Japan and became a permanent tax resident at some point, it might be worth seeking professional advice on this, or at least speaking to the local tax office and reading up on the relevant taxation treaties.

Indeed that is exactly what I thought of doing lately! Now is not a good time as the tax office is busy with people who actually have to declare while I do not need to yet.

> Most non-US nationals here find it easier tax reporting-wise (and often cheaper) to invest via Japanese brokers.

This is exactly what I'm doing since moving to Japan. However the assets already invested before moving here is a different matter.

> It might be worth bringing your assets over before or around the time your Japan tax status changes.

I am curious that you suggested this! This is the first thing I thought but I got the impression that moving over would entail a tax event (i.e. capital gain tax on all gains) at the moment of transfer, is that not true?
Perhaps it is because the assets would move from a joint account to a non-joint account?

I currently use Rakuten in Japan but I'm investing in index following funds and not ETFs like I used to overseas, I wonder how will these transfer.

[kanpanela]

My understanding is that the US taxes dividends at source but not capital gains.

That is an interesting point! Is this true? Anyone here can share their experiences?

So when a non-US citizen overseas holds some assets and sells them and gains, does he declare taxes to the US? To his home country? To both?