RetireJapan

My spouse and I are US citizens and have been in Japan for about 1.5 years on an HSP visa and are considering applying for PR later this year, but want to make sure we understand all the tax implications (especially which ones are irreversible).

From my understanding, most of the taxation rules are around whether we are non-tax-residents vs non-permanent-tax-residents vs permanent-tax-residents (i.e. whether we’ve been tax residents for 5 of the last 10 years) and don’t actually change once we get a visa PR, is that right?

The main exceptions I’ve found:

• Exit tax - I’m not sure on this, but I think nothing would change immediately upon getting PR since we are currently non-permanent-tax-residents, but once we hit 5/10 years we would become subject to exit tax and this would become a irreversible decision (well, irreversible without paying the exit tax). Unfortunately we have over 100 million JPY in equities (in the US) so we would be subject to this. From my reading, if we never got PR (or any table 2 visa), we would never be subject to the exit tax (even if we became permanent-tax-residents), so it’s a real consequence of getting PR we need to think through.

• Gift/inheritance tax - if we get PR, since we’ll become a table 2 visa, we’ll immediately be subject to these taxes. Fortunately (or not), we don’t expect any inheritance or large gifts so we’re okay with this. I also can’t find it anymore, but I think I read somewhere that there are ways around if we suddenly expect a large gift and it’s worth the hassle of avoiding gift tax on it, e.g. leaving Japan/moving our 住所 out of Japan for a year or so to become non-tax-residents? Though that might trigger the exit tax if we’re already permanent-tax-residents so might be moot.

Particularly, we are likely going to retire soon and so will primarily be living off dividends/selling capital gains (on US index funds) - my understanding is that the taxation around those won’t change at all whether we’re on HSP or PR.


Or tldr


Consequences of changing from HSP to PR

• Gift and inheritance tax are immediately subject instead of only if a permanent-tax-resident

• Exit tax becomes applicable (but only if also a permanent-tax-resident?)

Consequences of accumulating 5 years and switching from non-permanent-tax-resident to permanent-tax-resident

• Taxes on all income, not just Japan sourced income

• Exit tax becomes applicable (but only if also on a table 2 visa)

• Gift/inheritance tax are now subject (if they weren’t already subject from being on table 2 visa)

• Need to report all global assets? Or does this also happen with just a visa PR?

Does the above understanding seem correct? Is there anything else we should be concerned about if we apply for PR?

Also kind of a side question - is there anything wrong with just never establishing juusho in Japan (and therefore being non-tax-residents) but being on a PR visa? We are currently definitely Japan tax residents but may move back to the U.S. pretty soon after getting our PR (is that frowned upon?) and consider splitting our time between the two countries.

Obviously the details matter here, but e.g. if we rent in both the US and in Japan and don’t have employers in either, spend about equal time in each, all of our family/connections/most belongings/etc are in the U.S., it seems like we’d be tax-non-residents despite having a PR visa? We don’t want to do anything sketchy/aren’t trying to change our whole lives just to avoid taxes or anything, but if we’re naturally doing that anyway it would simplify a lot of things if it’s allowed.

Your interpretation of the exit tax and PR is the same as mine, and the main reason it would be financial suicide for me to accept PR here.

My whole strategy to avoid Japan taxing me on investments I’ve been building my whole life is to leave, take the capital gains while outside of Japan, fix everything into efficient structures to avoid the excessive inheritance tax and then return to Japan sometime down the line (and then maybe accept PR!)

This might be an option for you too?

Deep Blue wrote: ↑Wed May 15, 2024 6:34 am This might be an option for you too?

Thanks for the response and helpful sanity check! Unfortunately that's probably not an option either since we plan to slowly take the capital gains throughout retirement instead of all at once to avoid bumping into too high of a US capital gains bracket

Just curious, have you considered accepting PR but not establishing permanent tax residency? Though it sounds like even with that strategy, having PR would cause issues with inheritance tax too, so guessing that doesn't make sense in your case either.

Deep Blue wrote: ↑Wed May 15, 2024 6:34 am Your interpretation of the exit tax and PR is the same as mine, and the main reason it would be financial suicide for me to accept PR here.

My whole strategy to avoid Japan taxing me on investments I’ve been building my whole life is to leave, take the capital gains while outside of Japan, fix everything into efficient structures to avoid the excessive inheritance tax and then return to Japan sometime down the line (and then maybe accept PR!)

This might be an option for you too?

Which visa are you on?

Exit tax isn’t just isolated to PR. It applies to the other “table 2” visas too, such as spouse visa and the long-term resident visa.

TunaSki wrote: ↑Sat May 18, 2024 3:27 am

Deep Blue wrote: ↑Wed May 15, 2024 6:34 am Your interpretation of the exit tax and PR is the same as mine, and the main reason it would be financial suicide for me to accept PR here.

My whole strategy to avoid Japan taxing me on investments I’ve been building my whole life is to leave, take the capital gains while outside of Japan, fix everything into efficient structures to avoid the excessive inheritance tax and then return to Japan sometime down the line (and then maybe accept PR!)

This might be an option for you too?

Which visa are you on?

Exit tax isn’t just isolated to PR. It applies to the other “table 2” visas too, such as spouse visa and the long-term resident visa.

Yes, I know. I'm on a highly skilled professional visa, so I can skip exit tax.

Interesting thread. Thanks for this.

Has anyone investigated the possibility to avoid the withholding taxes in the case of Japanese online brokers - eg Rakuten - incase we sell when we’re overseas in a jurisdiction with no capital gains on equities?

This thread has got me thinking - maybe all the money I have piled into Emaxis Slim All Country on my Specific account (taxes withheld by Rakuten) was a mistake incase I’m not living in Japan at the time I sell - and we foreigners whom might not be here in the future should always be investing with our “general” accounts instead? The risk of a little extra paperwork is nothing compared to the taxes.

Or - can I dream that Rakuten will allow me to change the tax withholding designation of my stocks to “general” once they know I’m not in Japan?

I’d ask Rakuten. I’ve kept all my investments in unit trusts etc offshore to avoid this sort of issue.

smalldog wrote: ↑Sat May 18, 2024 8:39 am Interesting thread. Thanks for this.

Has anyone investigated the possibility to avoid the withholding taxes in the case of Japanese online brokers - eg Rakuten - incase we sell when we’re overseas in a jurisdiction with no capital gains on equities?

This thread has got me thinking - maybe all the money I have piled into Emaxis Slim All Country on my Specific account (taxes withheld by Rakuten) was a mistake incase I’m not living in Japan at the time I sell - and we foreigners whom might not be here in the future should always be investing with our “general” accounts instead? The risk of a little extra paperwork is nothing compared to the taxes.

Or - can I dream that Rakuten will allow me to change the tax withholding designation of my stocks to “general” once they know I’m not in Japan?

Rakuten will close your account once they know you are not in Japan

smalldog wrote: ↑Sat May 18, 2024 8:39 am This thread has got me thinking - maybe all the money I have piled into Emaxis Slim All Country on my Specific account (taxes withheld by Rakuten) was a mistake incase I’m not living in Japan at the time I sell

There is probably a lack of content online at the moment for people who are temporarily in Japan. However, the forum being called Retire Japan, and the wiki being RetireWiki.jp, the content is largely aimed at people who are planning on staying here.