Permanent Resident for immigration but not for tax in retirement

[takespam]

Hi,

My understanding is that as a permanent resident for immigration purposes, one can still maintain non-permanent resident status for tax purposes if one lives abroad for more than 5 of the past 10 years. Consider a moderately wealthy financially independent US citizen with occasional US-based high capital gains, and who also has somehow obtained Japanese PR immigration status and is still a non-permanent resident for tax purposes.

The angel investing capital gains in the US can be sporadic but large, but due to qualified small business stock (QSBS) exemption, they pay 0% in the US. This person won't have permanent resident tax status in JP and won't be subject to JP taxes for these capital gains if they can structure their time in JP appropriately (e.g. if they live in the US for 7 months out of the year and comes to Japan for 5 months).

Exit tax is also not an issue as a non permanent tax resident.

Of course, tax law can change quickly, and one might decide to live for more than 50% of the time in JP. I would mainly like to hear if my interpretation seems incorrect, or if there are obvious problems. In particular, if there are any problems maintaining PR immigration status like this.

An alternative would be to change to use tourist visas if the time in JP can really be structured this regular and predictable way every year. But the PR gives the benefit of a 5-year 'bank' that can be 'saved up' which allows for longer stays and a few other benefits.

[captainspoke]

You've got PR already? (If not, that would be a big first step in all this hypothesizing.)

[Tkydon]

The OP states that the subject of the discussion (not the OP) "somehow obtained Japanese PR immigration status and is still a non-permanent resident for tax purposes."

Probably through the Skilled Migrant Worker Points Program, where a candidate can now apparently apply for PR (Immigration) after just 1 year.

This question is very complex, and on the edge of the definition of 'Tax Domicile'.

Different from other visa classes, having taken Japanese PR (Immigration), it might be difficult to argue that he doesn't intend to establish his Tax Domicile in Japan, meaning that the trips abroad may then not be considered breaks in that Tax Domicile, especially if the subject and/or his family maintain a residence (house) for their exclusive use in Japan. (not rented-out...)

The subject would need to discuss this strategy with a qualified advisor; Tax Lawyer or Tax Accountant and Immigration Lawyer.

[takespam]

Thank you Tkydon, I appreciate the input and the recognition of the complexity involved, as well as the tax domicile example. It's helpful to have my naïve interpretation challenged; I see that it's likely that there are a number of other similarly complicated and hidden factors at play that a qualified advisor would be more likely to caution about.

[Tkydon]

https://www.nta.go.jp/taxes/shiraberu/s ... df/050.pdf

See Pages 5-6.

1-3 Taxpayers and the scope of taxable income
Any individual is subject to tax liability of income tax etc. in accordance with the following residential categories.
1. Classification for residential status
1) Residents
Any individual who has a “JUSHO (domicile)” or owns a “KYOSHO (residence)” continuously for one year or more is classified as a resident. Among residents, any individual of non Japanese nationality who has had a domicile or a residence in Japan for an aggregate period of five years or less within the preceding ten years is classified as a non-permanent resident.
2) Non-residents
Any individual other than the residents mentioned in “1) Residents” above is classified as a non-resident.

Note
If a person who owns a residence in Japan leaves Japan with the intent to be absent temporarily and later reenter Japan, the person shall be treated as having been residing in Japan during the period of absence.
The intention to be absent temporarily will be presumed if, during the period of absence,
(a) the person’s spouse or relatives remain in the household in Japan,
(b) the person retains a residence or a room in a hotel for residential use after returning to Japan, or
(c) the person’s personal property for daily use is kept in Japan for use upon return to Japan.


The '5 Out Of The Last 10 Years Rule', was an amendment to the previous '5 Year Rule', to prevent ex-pats from leaving Japan when they neared the 5 Year deadline, terminating their residency, leaving Japan, and then 1 year later coming back on a new Visa and starting the clock from zero. They would now only gain 1 year of extended non-Permanent Resident status from every 1 year spent abroad.

[emikami]

Hi,

My understanding is that as a permanent resident for immigration purposes, one can still maintain non-permanent resident status for tax purposes if one lives abroad for more than 5 of the past 10 years. Consider a moderately wealthy financially independent US citizen with occasional US-based high capital gains, and who also has somehow obtained Japanese PR immigration status and is still a non-permanent resident for tax purposes.

The tax guide states "Among residents, any individual of non Japanese nationality who has had a domicile or a residence in Japan for an aggregate period of five years or less within the preceding ten years is classified as a non-permanent resident. "

So I do see your point that maybe you can be a permanent resident without being a non-permanent resident for tax purpose. However, I think it actually takes a minimum of 5 years in Japan to become eligible to apply for permanent residency. If you leave Japan and return within a year, that duration is still counted as if you haven't left at all. If you apply for a re-entry permit so that you can stay out of Japan for up to 2 years, I think only up to the 2nd year is counted as if aren't in Japan. So if you left for nearly 2 years, returned to Japan and repeated this a few times, will that work? No. You'll always have 5 years out of the 10 years assuming they'll keep letting you leave for nearly 2 years only to return to Japan for a few days as many times as you like without impacting your permanent residency.

[Tkydon]

As Emi said, any period less than a full year outside Japan would not be considered a break in your Domicile, so would not reduce the duration for Permanent Resident For Tax Purposes.

As a Permanent Resident Immigration Status, a Multi-Re-Entry Permit is valid up to 5 years, or the length of your Zairyu Card Validity.
(Up to 6 years for Special Permanent Residents)
For other Immigration Status, a Multi-Re-Entry Permit is valid up to 5 years, or the length of your Visa (Zairyu Card Validity).

https://www.isa.go.jp/en/applications/g ... ri_qa.html

Q54, Q56.

It would require a visit to Immigration to renew Zairyu Card and Multi-Re-Entry Permit.



As an aside:
Under the "Specified Skilled Worker (SSW)" Program, it is now possible for a qualified Skilled Worker to apply for Permanent Resident Immigration Status after just 1 year. They still do not become Permanent Resident for Tax Purposes until the 5 year anniversary.

Currently, anyone who had their Permanent Resident Immigration Status lapse whilst abroad due to COVID and not being able to return to Japan before termination of Re-Entry Permit or Special Re-Entry Permit will, when General Immigration opens up, be able to apply for a Long-Term Visa at the Japanese Embassy or Consulate overseas, and on presentation of an Apology Letter will be converted back to Permanent Resident Immigration Status at the border.

[emikami]

As Emi said, any period less than a full year outside Japan would not be considered a break in your Domicile, so would not reduce the duration for Permanent Resident For Tax Purposes.

I think you must actually remove your jyumin hyo to be excluded from domicile. Can you even do this if you still have any Visa status in Japan? If you can't, this won't work anyway.

But if you can, imagine the possibilities. Live in the U.S. for longer than 6 months and live just below 6 months in Japan without changing your tax status in the U.S. and in fact, you might be a non-resident in Japan for tax purpose making tax filing a lot easier and less expensive as well. Sort of like extending the 90 day Visa waiver (which is still suspended because of COVID) to almost 6 months.

There's a gotcha on that one assuming it is somehow workable if you're careful with that plan. U.S. Japan tax treaty under article 2 covers 1. income tax and 2. corporate tax for Japanese tax purpose. Income tax refers to only shotoku zei and not local inhabitant tax (jyumin zei). This creates a problem that it is possible to be a non-resident by tax treaty but a resident by Japanese law if you had jyumin hyo and was in Japan on January 1, you are resident by Japanese law. Since jymin zei is not covered by the tax treaty, even if you are a non-resident by tax treaty, you'll owe jyumin zei.

So any takers in trying to do this? I bet if it is possible, it won't be possible for very long. They changed the non-permanent resident to 5 years in the last 10 years purposefully to not have people stay in Japan so long without paying income tax, inhabitant tax, social insurance, and health insurance in Japan.

[TokyoWart]

I think you must actually remove your jyumin hyo to be excluded from domicile. Can you even do this if you still have any Visa status in Japan? If you can't, this won't work anyway.

I think my family discovered a loophole to this. If you fail to return to Japan within 1 year as a permanent resident who doesn’t have a re-entry permit which goes beyond 1 year you lose PR and are automatically removed from the jyuminhyo without query about exit tax. During the COVID-19 travel restrictions most of my family were trapped outside Japan and this is what happened to them. We actually reinstated PR because we aren’t looking for a way to leave without paying taxes but it’s at least one example of how this system breaks down because foreigners are never really considered in Japanese policies.

[adamu]

I think my family discovered a loophole to this. If you fail to return to Japan within 1 year as a permanent resident who doesn’t have a re-entry permit which goes beyond 1 year you lose PR and are automatically removed from the jyuminhyo without query about exit tax. During the COVID-19 travel restrictions most of my family were trapped outside Japan and this is what happened to them. We actually reinstated PR because we aren’t looking for a way to leave without paying taxes but it’s at least one example of how this system breaks down because foreigners are never really considered in Japanese policies.

Sorry for the side-track, but did you re-apply for PR from scratch, or were you fast-tracked, or did they give you special consideration due to the travel restrictions? Just curious what the procedure was. You certainly didn't fulfil the 10 consecutive years requirement!

Currently, anyone who had their Permanent Resident Immigration Status lapse whilst abroad due to COVID and not being able to return to Japan before termination of Re-Entry Permit or Special Re-Entry Permit will, when General Immigration opens up, be able to apply for a Long-Term Visa at the Japanese Embassy or Consulate overseas, and on presentation of an Apology Letter will be converted back to Permanent Resident Immigration Status at the border.

Very interesting. What is an Apology Letter? Are there any public guidelines about this?