Moving assets to Japan

[Stever]

Newbie here. I have been following this page from time to time, it has been a great go-to place for information. I found several messages on the board that answer some of my questions, but I am struggling to understand the potential tax issues for moving cash to Japan.

Background
I have been working/living in mainland China for the last 15 years. We (Japanese wife) decided to come back to Japan permanently and have already started the process. We arrived in Oct. 2021, I now have a spouse visa and have got the basics set up (Zairyu card, health care, my number, pension) that allows me to get a phone and set up trading and bank accounts. Currently I am still working remotely for the China operation and plan to do so for several more months. I will return to China for several months this year. As of now, I have no domestic sourced income.

I would like to move my current assets, a trading account and savings account, to Japan. My plan this year is to transfer my portfolio to Interactive Brokers Japan (not selling so no capital gains, dividends taxed at source so just a simple tax filing process). I would transfer the cash from Hong Kong to a Japanese bank and then trickle it into the IBKR as the market ebbs and flows.

As I understand from reading here and talking to a Japanese accountant:
1) Since I have entered the system (Zairyu card, health care, my number, pension) I am now a Non-Permanent Resident for tax purposes
2) I will be only taxed on foreign earnings remitted to Japan (dividends, interest, foreign sourced income) in the first 5 years, and then on worldwide income in the following years. As I have been working remotely for a couple months from Japan, this income will likely be regarded as domestic sourced income (especially if I do not return to China for a period of time this year).
3) China and Japan have a tax treaty so I will not be double taxed and simply have to file a tax return in Japan for 2022 (possibly 2021)

However, I am getting some mixed information and hope someone here may have some thoughts. After consulting a Japanese accountant, I was told that moving my trading account here would not trigger any tax issue, but the cash would. She told me ALL cash remitted to Japan would be considered income and therefore taxable.
Obviously, a portion of the cash that I intend to remit is income from the last year tax year and falls into this category, but a large portion of it is savings from 15 years of hard work. It seems strange to combine everything from years ago with the latest income for the tax year. As the savings are not a source of income (other than interest), is it possible to be treated as such and taxed?

I plan to talk to this same accountant one more time to make sure she understands my situation clearly. It would be great to get some thoughts from here before I do so.

Thanks,

Steve

[Beaglehound]

As regards the advice that any savings transferred are taxable in full, my understanding is that this is simply not true. You would however be on the hook for any foreign-sourced income generated in the same year that you remit to Japan in the first five years. So, for example, if your savings generated a certain amount of interest, any cash you remitted to Japan would be liable for taxation up to the amount of that interest (plus any other foreign sourced income you might have). It’s not an argument to say that you are sending money saved from previous years and not this year’s interest.

I am not sure how it would work if you remitted in the same year that you have earned significant amounts from working in China (foreign-sourced rather than domestic-sourced from you working remotely in Japan). Perhaps best to avoid that scenario.

[Tkydon]

I think that any cash that was in your account as of last December can be remitted Tax Free. There is no income component. Transferring your Cash does not equal and Income Event or a Taxable Event.

Any income from Chinese work that you did last year, was not remitted to Japan in the year in which it was earned, and you were a Non-Resident for the first Year, or until you moved in to a permanent abode, so would be tax free. The Cash this year in not Income.

Any interest on that money between 1 Jan and when you remit it would be taxable as Interest Income.

Any income from Chinese work since 1 Jan, if remitted to Japan in this tax year, would be taxable as income. If you leave it until next year, not so.

Any Capital Gains from sales of assets during this year will be taxable in Japan if you remit it this year. If you leave it until next year, not so.

However, if you pay any taxes on this year's income in China, you can file that as a Foreign Tax Credit against the Japanese Taxes.

When did you get your Spouse Visa? You were non-resident until then.
When did you rent or buy, or move into an abode? You were non-resident until then.
Are you still in temporary accommodation? You will be non-resident until you do, or 1 year anniversary...
Were you registered in a permanent address with the Kuyakusho on 1 Jan?

If you remit any of this year's Taxable Income within this year, ti will be liable for National taxes next March and Residents' Taxes next year - July '23 to June '24.

Cash is not taxable. Only remitted Income is taxable.

[Stever]

Thanks for both of your replies.
I am glad to hear that I am not alone on my interpretation of savings vs income. I will confirm this with the accountant, if she does not understand it this way then I will look elsewhere. My first year tax filing will be a challenge for the accountant, best to have one with some experience. Any recommendations would be appreciated by PM. As I will not be living there any longer, I will be required to move all of my assets out of China this year, so I hoping to avoid any expensive pitfalls.


To answer your questions @ Tkydon

When did you get your Spouse Visa? You were non-resident until then.
When did you rent or buy, or move into an abode? You were non-resident until then.
Are you still in temporary accommodation? You will be non-resident until you do, or 1 year anniversary...
Were you registered in a permanent address with the Kuyakusho on 1 Jan?

I picked up my visa and registered at the Kuyakusho on Jan 4th 2022. They signed me up for healthcare, my number, zairyu card, and pension on the spot, so I believe I became a tax resident on that date. I made sure they wrote down Jan. 4th on the form stating when I permanently moved to the city. My understanding is that I should not be required to file a tax return for 2021.

I am planning to return to China in the coming month for a few months. I wonder how my foreign sourced income would be treated if I was here for January and February, then away for 3-4 months, then back here for the rest of the year. Would it be considered domestic sourced income because I am working remotely from Japan? I guess it doesn't really matter if I file Foreign Tax Credit against the Japanese Taxes.

Moving my trading account seems like a pretty easy process. Anything I should look out for? (other than the fees on both sides).

Thanks,

Steve

[captainspoke]

... Would it be considered domestic sourced income because I am working remotely from Japan? ...

Definitely domestic--you are doing the work while you are here.

[Stever]

I did some further digging and found an interesting link that reaffirms my Japanese accountant's initial advice. Has anyone had any experience with this?

https://ty-tax-accountant.com/en/archives/6972

Likely overlooked Tax on Remittance
“Remittance Tax” is a typical problem for foreigners who are newcomer to Japan.
As mentioned earlier, income tax on Foreign Source Income of NPR is suspended until it is paid in or remitted to Japan.
However, as the money is fungible, even if you remit part of money you saved before you come to Japan, it will be subject to Remittance Tax as long as you have Foreign Source Income in the year of the remittance.
If you transfer a large amount of money so that you can buy daily necessities and appliances immediately after your arrival in Japan, you may be taxed unexpectedly.
So you should consider how much money you really need to bring to Japan in advance to the relocation but the most seldom do it.

It is interesting to read that the term domestic sourced income was changed in 2017 to "non-foreign source income".

[Beaglehound]

I did some further digging and found an interesting link that reaffirms my Japanese accountant's initial advice. Has anyone had any experience with this?

https://ty-tax-accountant.com/en/archives/6972

Likely overlooked Tax on Remittance
“Remittance Tax” is a typical problem for foreigners who are newcomer to Japan.
As mentioned earlier, income tax on Foreign Source Income of NPR is suspended until it is paid in or remitted to Japan.
However, as the money is fungible, even if you remit part of money you saved before you come to Japan, it will be subject to Remittance Tax as long as you have Foreign Source Income in the year of the remittance.
If you transfer a large amount of money so that you can buy daily necessities and appliances immediately after your arrival in Japan, you may be taxed unexpectedly.
So you should consider how much money you really need to bring to Japan in advance to the relocation but the most seldom do it.

It is interesting to read that the term domestic sourced income was changed in 2017 to "non-foreign source income".

I came across that link when I was in a similar situation to you. I think what your accountant is missing is that savings remitted are only taxable in the event of, and up to the amount of, you having foreign source income in the year you remit. That article is saying that if, for example, you earn income overseas which goes into an overseas bank account and never reaches these shores, but also remit money from previously acquired savings in a different account (even from a different country) the J tax office would deem that to be a remittance of the foreign source income you earned that year, but only up to the amount of said income.

[Tkydon]

I picked up my visa and registered at the Kuyakusho on Jan 4th 2022. They signed me up for healthcare, my number, zairyu card, and pension on the spot, so I believe I became a tax resident on that date. I made sure they wrote down Jan. 4th on the form stating when I permanently moved to the city. My understanding is that I should not be required to file a tax return for 2021.

Therefore, you were not in your Ku on 1 Japan, and so you will not be liable for Residents' Taxes on last year's income.
You will be liable for Residents' Taxes on 2022 Income, for which you will receive the bill in June 2023 and pay from July 2023 to June 2024...
Yes, you are not required to file a return for 2021, but you will be required to file for 2022 in March 2023.

I am planning to return to China in the coming month for a few months. I wonder how my foreign sourced income would be treated if I was here for January and February, then away for 3-4 months, then back here for the rest of the year. Would it be considered domestic sourced income because I am working remotely from Japan? I guess it doesn't really matter if I file Foreign Tax Credit against the Japanese Taxes.

Make sure you get clear stamps in your passport for any long trip in the first couple to 5 years.
You can claim that your 5 year Anniversary and the start of your Permanent Resident For Tax Purposes status is delayed by the time spent outside Japan.

https://www.nta.go.jp/taxes/shiraberu/s ... df/050.pdf
See Pages 7 to 9

For the time you are in China, the income you receive In China for work carried out In China will only be taxable in China, Unless you remit it to Japan in the same tax year, and then it must be counted as salary in Japan, and you have to report it on your 2022 return in March 2023, and pay Income, Reconstruction and Residents' Taxes on it in Apr 2023 and from July 2023 to June 2024.
This is classified as Foreign Source Income - D Paid Abroad - Taxable on Remmitance to Japan.

If you leave it in the bank in China until 2023 and then transfer it, it is just a cash asset transfer and not a taxable income event.

After you return to Japan, the income you receive In China for work carried out For China but In Japan will be taxable in Japan, whether you remit it in 2022 or not, so you might as well have it paid to you in Japan in 2022, and then it must be counted as salary in Japan, and you have to report it in your return for 2022 in Mar 2023, and pay Income, Reconstruction and Residents' Taxes on it in Apr 2023 and from July 2023 to June 2024.
As you are actually performing the work in Japan, this is classified as Income Other Than Foreign Source Income - B Paid Abroad - Taxable in Japan whether remitted or not.

[Stever]

Thanks for your comments Tykdon.

If you leave it in the bank in China until 2023 and then transfer it, it is just a cash asset transfer and not a taxable income event.

I will transferring my trading account to Japan this year, so I will need to file a tax return for dividends and any potential capital gains in 2022. So if I need to file a tax return anyway, and China and Japan have a tax treaty, I guess it doesn't really matter if I remit all income this year too?
Besides the possibility that my tax rate in China is lower than Japan, would there be any other tax implications?

As I understand, my national health care premiums in 2023 will be based on my 2022 income, so I that would be a good reason not to remit any (or as little as possible) to Japan this year. Does that sound correct?

Thanks,

Steve

[kizuki]

I will transferring my trading account to Japan this year, so I will need to file a tax return for dividends and any potential capital gains in 2022. So if I need to file a tax return anyway, and China and Japan have a tax treaty, I guess it doesn't really matter if I remit all income this year too?
Besides the possibility that my tax rate in China is lower than Japan, would there be any other tax implications?

As I understand, my national health care premiums in 2023 will be based on my 2022 income, so I that would be a good reason not to remit any (or as little as possible) to Japan this year. Does that sound correct?

Thanks,

Steve

You mentioned that you plan to transfer your trading to IB account. Is this IBLLC or IBKR JP account i.e. the international one or domestic one? If you are planning to move to the international one (I assume) since it is the one which allows international investments as per my understanding, in that case another option will be to open the IBLLC account from JP, but move your money / securities directly from HK or CN to the IBLLC account. My understanding is that IBLLC account is considered non-JP domicile so I assume that a direct movement from HK/CN to IBLLC will not count as the money having been remitted to JP (you should confirm with accountants and even with IB). By the way, if you have more than 50 million in assets in HK/CN or IBLLC, you will need to file the Overseas Asset Report with the tax authorities here.