The Journal The Authority on Global Business in Japan

On December 12, Japan’s ruling parties published their 2020 Tax Reform Proposals, which are expected to become law in March. This article provides an overview of the major items in the 2020 proposals related to individual income taxation. Please note that some items may change depending on the outcome of future Diet deliberations.

1. PROHIBITION OF AGGREGATION OF PROFIT AND LOSS FOR LOSSES FROM OVERSEAS USED REAL PROPERTIES
A) If an individual has real estate income derived from overseas used real property, and it falls under the case set out in item B below, the portion of loss corresponding to the depreciation of the overseas used real property will be deemed as if there was none and disallowed to offset against other types of income.

B) This measure will be applicable to overseas used real property owned by an individual where useful life of that real property is calculated by either of the following methods in the computation of depreciation expenses:

    i. For assets that have passed all of their statutory useful lives, a method in which the useful life is equal to 20 percent of their statutory useful lives.

    ii. For assets that have passed a portion of their statutory useful lives, a method in which the useful life is calculated as a sum of i (the statutory useful life of the asset minus elapsed years) and ii (20 percent of the elapsed years).

    iii. A method in which the useful life is the estimated usable period after the building is used for rent.

This will be applicable except in cases where the taxpayer attaches certain documents that either clarify that such useful life is the statutory useful life in the jurisdiction where the overseas used real property is located or otherwise certify that such an esti­mated usable period is appropriate.

C) If an individual transfers overseas used real property which are subject to B above, the amount of the disallowed depreciation will not be subtracted from the acquisition cost for the purpose of calculating capital gains.

D) This measure will be applied to income tax for 2021 and thereafter.

2. AMENDMENTS TO THE STATUTE OF LIMITATION FOR THE CORRECTION OR DETERMINATION OF TAXES RELATING TO FOREIGN TRANSACTIONS
A)If an agent of the National Tax Agency requests that a taxpayer present or submit documents concerning foreign transactions or foreign assets, and the taxpayer fails to present or submit said documents by the designated deadline, corrections and determinations of taxes due to the reason set out in item B below will be permitted for a period of three years following the date of request.

B) If the Commissioner of the National Tax Agency, etc. makes a request to a partner country based on tax convention, etc. for information concerning foreign transactions or foreign assets with respect to item A above and recognizes the difference from the reported information with respect to tax base or tax amount.

C) This amendment will be applied to national tax for which the statutory due date of filing a return is on or after April 1, 2020.

3. AMENDMENTS IN SCOPE OF FAMILY MEMBERS LIVING OUTSIDE JAPAN CLAIMED AS TAX DEPENDENTS FOR INCOME DEDUCTION PURPOSES 
A) Family members aged 30–69 living outside Japan who are tax non-residents of Japan cannot be claimed as tax dependents for income deduction purposes unless they meet one of the following conditions:

    i. Has become a tax non-resident of Japan to pursue studies outside Japan

    ii. Suffer from disability

    iii. Receive ¥380,000 or more of financial support from the taxpayer each year towards living and education expenses

In addition, to claim conditions i or iii, certain documents must be presented or submitted to substantiate the requirements.

B) This amendment will be applied to employment income and public pensions, etc. paid on or after January 1, 2023, and individual income tax thereon for 2023 and thereafter. 

 

Takehiko Hara is a director at Grant Thornton Japan’s Global Mobility Service, providing tax solutions to global mobile employees, global business, and high-net worth individuals with overseas assets. Hara joined Grant Thornton Japan in 2018 and specializes in international taxation for Japanese and non-Japanese nationals. His 35 years of experience includes the Tokyo Regional Taxation Bureau, Tokyo Regional Tax Tribunal, National Tax College, and National Tax Agency.

 

For more information, please contact your Grant Thornton representative at +81 (0)3 5770 8829 or email us at toru.shirai@jp.gt.com